- Welcome to Curt's Chalk Talk, the transition tax topics series. I'm Curt Sheldon with C.L. Sheldon and Company and today we're going to talk about your W-4.
Now you need to be careful when you fill out your W-4 because it has to do with how employers do withholding. So, let's take a scenario when you have a new job and your employer's paying you $90,000 a year. Well, they're going to withhold a portion at 0% and then on top of that they're gonna withhold a portion at approximately 10% and then just a little bit at 12%. But in reality that $90,000 sits on top of your $70,000 or so military retirement. So, instead of starting withholding at $0 or 0%, your employer should start at 12% and, oh by the way, there's going to be a pretty big portion here that's going to be taxed at 22% and if you don't make some corrections, none of your income will actually be taxed at that rate.
So what do you do about it? Well, one option is to use the IRS's W-4 calculator. I personally like to use the 1040 ES where you go in and estimate your tax return and figure out what you're going to owe. Then you can go into My Pay and adjust your withholding to say take X amount extra from my pay to make sure, from my retirement pay, to make sure I have my taxes covered. If either of those two are too complicated for you, make sure at least you take the time to do the W-4 correctly. And when it's all said and done, if you're hitting around 150,000, $160,000 worth of income, you should expect to withhold somewhere around $20,000 in total taxes because that's what you're going to owe at the federal level.
Are you concerned about your finances as you make the transition from active duty to the civilian world? Well, we can help. Check out our financial checklist available at www.clsheldon.com/tax. For free at www.clsheldon.com/tax.
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