us taxes

[david b 2]

I am quite concerned about how taxes are filed in the US. I have always been employed in the UK, and my employer has taken care of all the tax and national insurance stuff and just gave me my p30?? or whatever it is to show how much tax I have paid. Is that how it works in most businesses here in the UK? Do people in the US all have to fill these forms in themselves..or does the employer do it ?

I really have no idea about taxes, I know mine get paid by my employer, thats as much as I know.

Is it a lot more complicated in the US...? I know I would have to do it here in the UK if I was self-employed, but I never have been!

[Lansbury 19]

It is a lot more complicated here. Basically your employer will agree with you an amount to withhold from your wages to cover Federal and if necessary State income tax. The knack to to get the withholding amount as close to what you will actually be assessed to pay in tax when you file your tax return.

At the end of the year you will need to file a tax return showing your earnings, any deductions you can claim, and the amount your employer withheld in tax for you. If the withholding was more than the tax you are required to pay, you get a rebate, if less you have to pay up.

There is a whole industry here of CPAs who prepare tax returns for you of course for a modest :-) payment. My wife and I this year paid $265 and that included them working out the withholding amounts on my UK pension for 2010, for me to pay quaterly to the IRS and Oregon State. At least for the first time you might find it easier to pay to have it done and then in future years get something like Turbo Tax to do it yourself. As someone more use to the British system I find the US one very complicated especially as to what you can claim as a deduction.

Edited March 20, 2010 by Lansbury

[Sherri and Matt 1]

When you start a job you have to fill out something called an I-9. You put down on that the number of dependants you have, including yourself. A percentage for Taxes is taken from your paycheck based on the number of dependants you claim, and the amount of money you make. At the beginning of the next calendar year, your employer gives you a form called a W-2 that shows how much money you earned and how much was paid for taxes. You then fill out tax return (or have an accountant do it for you). That determines how much you actually owed the government and compares it to how much you actually paid. If you paid too much, they send you a check, if you paid too little, you owe the government money. Some people claim less dependants on the I-9 then they do on the actual tax return, because that means more money is held from their paycheck, but they get it all back at the beginning of the following year, like savings almost. My husband was amazed at the process of filing that tax return this year, and was almost speechless at the amount of money I got back. He just couldn't believe the government just gives out money like that, and he thought if I overpaid taxes, I should just pay less the following year.

Edited March 23, 2010 by Sherri and Matt

[Nich-Nick 3,354]

The form every worker fills out when they start a job is the W-4. It's not a big deal how you fill that out...meaning you don't have to be 100% accurate on your family size. The form is only an estimate of how much money should be held out of each pay check to pay in toward your yearly income tax. Taxes vary based on your income level and number of dependents, among other things. A single man earning $50k/year would pay more in taxes than a married man earning $50k/year who has a wife and six kids.

Ideally the married man would fill out his W-4 indicating himself(1) + wife(1) + children(6) for a total of 8. He would have a lesser amount taken out of each pay check and at the end of the year, he would be spot on perfect in that the amount withheld from his pay check exactly matched the his income tax. But the W-4 estimate never seems to be ideal. So he does his tax return and finds out they didn't take out enough money from his pay check and he has to write a check to pay the difference. So he goes back to his employer and gets a new W-4. This time he fills it out indicating himself(1) + wife(1) + children(2) for a total of 4. That will result in more money taken out of each pay check because a family of 4 pays more in taxes than a family of 8 (if all other things were equal.)You can change your W-4 at any time to try to wrangle it to more closely estimate your final tax bill. You can even claim 0 to have even more taken out.

You calculate your final tax bill on the Form 1040. There are many factors besides how much money you earn at the job and that's why the W-4 doesn't always work out as the break even number.

Examples:

Salary $50,000

Investments like savings accounts or stock dividends paid $10,000 during the year. That's income, so now up to $60,000.

He rents out a house he owns and gets $48,000 in rent. That's income. But he gets to deduct certain expenses of keeping up the house so not all of that will count. You should be able to see why this man's W-4 isn't going to be a perfect estimate because he's got other sources of income. All the incomes add up to make a "adjusted gross income."

Then there's itemized deductions. Everybody gets a "standard deduction" based on filing status. in 2009, the married man gets $11,400 if filing jointly. That's subtracted from all that income mentioned above to get to his "taxable income." Then he calculates what he owes on his taxable income based on his filing status and family size. (It's on tax tables or done for you if you use Turbo Tax.)

BUT there are certain legal tax deductions this man can take. If he can come up with more than his standard $11,400 then he gets to subtract the higher amount. Examples of things that can be itemized:

Interest on your mortgage loan. (that a biggie if you're in the early years of a mortgage.)

Property taxes paid on the house you are buying.

State income tax or state sales tax.

Medical expenses + medical insurance premiums. (Not all of it, but anything that exceeds a certain percentage of your income.)

Contributions to your chuch.

Donations to charities.

Donation of household items and stuff to a qualifying charity.

The fee you pay somebody to do your taxes or what it cost to buy TurboTax.

Expenses required to keep your job that aren't reimbursed by the employer like union dues or certain required training you have to pay for and you would lose your job if you didn't take that training.

So maybe that list would add up to $35,000 of itemized deductions. The man in the example could subtract $35,000 (instead of only $11,400) from his gross income to come up with a much smaller taxable income.

A person who rents, doesn't get sick, doesn't give to charities is going be better off with the standard deduction.

So, to the Brit David B, I would say it's probably more complicated than what you are used to, but hopefully your wife will have some experience and can teach you. If you file jointly, then both your incomes are lumped together on one tax return. And maybe some of these posts will give you a general idea of how income tax works in the US. And it's good to keep in mind that what is held out of your paycheck is only an estimate. The final tax is worked out each year (due Apr. 15) on a 1040. If your tax is less than what was paid in then you get a refund. If your final tax figure is more than what was paid in, you write a check.

[david b 2]

Thank you for taking the time to give me that information. It has given me a much better idea of how things work. I will try and make sure I pay too much rather than too little, getting anything back will be great, even small amounts. After all, anything is better than having to send a check if I underpay.

I suppose first things first, and that will be finding a job!

Edited March 23, 2010 by david b

[Vivi6 12]

Hi Nich-Nick,

since you gave such accurate info and seem very knwoledgeable, I have a question for you: how do I choose my State and Federal withholding preference? I mean, I want to file as married, but from what I read should I just claim myself or also my husband? And what amount do I choose on Federal and State withholding? My salary is around 43,000/year,

Edited June 22, 2010 by Vivi6