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The Publication 505, see link, provides a step by step and explanation, as well as sample worksheets, to calculate your estimated payments. Yes, it may seem a bit daunting the first time...but after that it normally takes only a few minutes a few times a year as you'll have the basics of the consideration: http://www.irs.gov/publications/p505/index.html

How much tax you pay or have taken out depends on many, many things...not the least of which is what you consider tax. Many people group all their withholdings/reductions as a type of tax, but many may not be. Workers Comp, Unemployment, even FICA are all really more an insurance payment than a withholding against an income tax. And many must be paid either way, if your an employee or if your the proprietor.

The amount of tax you get back (or additional owed) depends on how much you paid in by estimated payments (if you didn't have payroll withholding, which is in itself, just a way to make estimated payments on what you may ultimately pay). And you must make estimated payments through the year (basically quarterly, the last one for 2007 is due today, 1/15/08) if your above some very low income limits, or you will pay substantial penalties and interest.

The amount of tax withheld or eventually paid also depends on other things...obviously which state (or even city) your in, the amount of income your projected on earning over the year, (which helps determine your tax bracket and the percent that may be needed), as well as your filing status, number of dependents and other deductions (like interest paid on a home, charity, medical expenses, etc). For withholding, all these things can be adjusted for your circumstances by properly and completely filling out (or changing) the Form W-4 all employers ask you to, and then properly reporting them on your 1040.

Finally, there are a number of different legal ways for the payroll provider to calculate certain aspects of the amount to withhold...but overall they make only a small difference. Remember, anything withheld is just being done as an estimated installment payment toward whatever tax, if any, you do ultimately owe. If too much is withheld, it is refunded. (Too little, and you could pay a penalty). Again, adjusting your W-4 is the way to correct for any of these circumstances. Obviously, with all the variables, everyone, even two similarpeople working in identicle jobs, will pay different taxes...and that is why each person needs to figure their return and file it. Which can be done for free at www.irs.gove and following the links.

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15y ago
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