How Do I Know How Much I Should Be Paying in Taxes?

How Do I Know How Much I Should Be Paying in Taxes?

Everybody has a different lifestyle situation. You could be married with three kids. You could be a student, ready to embark on your third year of college. You could be self-employed, or unemployed. No two scenarios are the exactly same, and that extends to tax payments.

Different people pay different amounts of income tax to the Internal Revenue Service. This amount is affected by marital status, employment status and location, among other factors. It can be hard to tell just how much you have to pay, but luckily, there are ways to find out. This article will give you a mini-guide into working out just how much income tax you need to pay.

A quick way to tell if you need to pay income tax

  1. Firstly, add up all your taxable income. This includes wages, salary, and various government benefits.
  2. Work out your personal allowance. This differs based on overall salary, and can be calculated using tools like this.
  3. Minus your personal allowance from your taxable income. If there’s anything left, you’re a taxpayer.
  4. If there is nothing left over, you shouldn’t be paying any income tax. You may also be due some form of reimbursement.
  5. Now all you need to work out if what your income tax rate is!

There are various factors that can affect the rate of your income tax. If you’re married, you can file for tax jointly, and this rate will be different than a single filing. However, some locations have a flat income tax rate for all marital scenarios, which makes your total easier to calculate.

Which state you live in can also impact your tax rate, and various online tax preparation services help take into account the cost of living and tax burden for each particular state. For example, living in a high-tax area of the country — such as California or New York — means your taxes will be higher than a low-tax state like Nevada or Florida.

Have I paid too much tax?

In some cases, yes, you will have. To prove it though, you’ll need to obtain all information about your income for that tax year. This includes all employment compensation, income from investments, interest and various other sources. Then, you need to use to calculate your taxable income, and determine your tax rate.

If you find you’ve made an underpayment or an over-payment, also contact your government’s tax office and you will be able to rectify the amount.

Overall, it can be quite hard to juggle tax payments with other expenses, like utility bills. This is on top of all those scenarios you should be saving for, and the costs can get too much.

So, it’s very important to make sure you pay correctly. You could be missing out on a tax return, or you could be breaking the law. Figure out your totals, and remove that stress!

Image courtesy of Flickr.

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