Frequently at the Fort Sill Income Tax Center clients come in expecting to see some money returned to them, but instead end up owing the IRS money.
There can be multiple reasons for this, and each tax return is a little bit different, but the most common reason for this has to do with how employers calculate withholdings. This is especially true if people who had multiple part-time jobs during the same year.
The explanation is pretty simple - your employer was incorrectly figuring how much money to withhold from each paycheck because your life circumstances were unknown.
The IRS Form W-4 that you filled out when you were first hired, and may not have updated, attempts to estimate taxes due, based on the answers to eight questions.
Employers then withhold a pro-rated share of that amount from each paycheck. It is not a perfect science and often individual life circumstances cannot be accounted for in those eight questions. Also, sometimes family circumstances change, and you might forget to update your W-4 to change your withholdings.
For example, consider the typical family of four. The wife is an active-duty Soldier with taxable income of about $30,000 per year, while the husband is having trouble finding steady employment because they recently PCSed. To make ends meet, the husband worked a few part-time jobs where he made $3,500 at the first (a seasonal job from November through December), $15,000 at the second and $18,000 at the third. He accurately recorded on his W-4 that they are a family of four.
We'll also assume where it says �"Enter '1' for your spouse" in bold he did not notice it goes on to say (not in bold) �"… you may choose to enter '-0-' if you … have either a working spouse or more than one job." This is an all-too-common scenario on the W-4 form.
Income for the year will be $66,500 for this family. This places them in the 15-percent tax bracket, even after deductions and exemptions.
But, here is the problem. With the exception of the $30,000 active-duty income, none of those jobs in isolation earned enough income to be taxed at the 15-percent tax bracket, and the payroll departments of those companies don't know that the employee has multiple jobs.
The seasonal job would not be taxed at all if it was the only source of income and, thus, withheld nothing. The $15,000 and $18,000 paying jobs would each be taxed in the 10-percent bracket in isolation (and most of the income would not be taxed at all if that were the only job the family had all year). These employers would only withhold 10 percent or less of income because they think that is what you will be taxed.
The result is even though each job correctly calculated the taxable withholdings based on your income at that job, it did not account for the total family income.
The family in the situation above would end up owing several hundred dollars or more in additional taxes at the end of the year.
If this happened to you, or you suspect that this may happen to you when filing your taxes next year, there is an easy fix for this.
Service members can change withholdings at the finance office, and civilian family members can ask their employers change their IRS Form W-4.
Ask to have fewer exemptions resulting in increased withholdings. If you end up withholding a little more than you needed to in the tax year, don't worry. Whatever extra money is withheld is given back to you at the end of the next tax year by the IRS.
The Fort Sill Income Tax Assistance Center has free income tax preparation until April 15. It is open to active duty service members, their family members and eligible retirees. It is in the Welcome Center, Building 4700 Mow-Way Road on the fourth floor. Operating hours are Mondays through Fridays from 9 a.m. to 4 p.m. and Saturdays from 9 a.m. to 1 p.m.
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