Payroll Deductions Income Tax / Schedule I

[Michaelh]

When estimating your tax liability/payroll deduction on the schedule I, is it fair and accepted to multiply your annual gross by your tax rate / bracket, then divide by 12 to arrive at a monthly deduction??

EX. To use round numbers... Debtor makes $50,000. His/Her tax bracket is 25%, so annually he/she pays $12,500 in taxes. Monthly tax liability would then be $1,041?

I have read where some have suggested using the prior year's tax info, but wouldn't that be speculative? Deductions, credits, etc. will change. Also, some people over/under withhold. Using you the Federal tax rate for you income makes the most sense.

Anyone?

[barbj]

Actually using last years tax return and plugging in new numbers would be easier.
Remember, if you are in the 25% bracket, not all of your income is taxed at 25%.
First you need to deduct the personal exemptions, then either itemized or standard deduction to get to taxable income. Then, if single, the first $8350 of taxable income is taxed at only 10%, the next $25,600 at 15% and so on.

Hope that makes sense, of course there could be much more to it than that depending on your situation.

[Michaelh]

Thanks for the reply! Excuse me for sounding like an idiot... but I don't get it. So if I am looking at my last years return, what numbers do I change or adjust to arrive at the proper tax liability? I know most people just put what it says on their pay checks, but is that the "right way" to do it?

[SMinGA]

If your paycheck is fairly regular in amount, then I would just multiply the check values to get a monthly figure. First though, you may need to adjust your withholding if you normally get a refund or owe. Aim to be pretty close to even at tax time. THen see what a 'regular' check has for withholding.

What barbj is saying is that if you're in the 25% bracket, you don't pay 25% on ALL of your income. So taking 25% x your gross won't be right.

[momofthree]

And, "gross income" is not even close to "taxable income." We made $68k last year and paid $0 in taxes. I don't mean that we "owed" $0, I mean our tax liability was $0 because of all of our deductions. However, stripping our 2nd mortgage, and not having a huge medical writeoff going forward, we do have to account for withholding in the future, so it wouldn't be accurate for us to use last year's numbers.

Your attorney should be able to advise you on how much to withhold each pay period. Ours has software where you can type in your deductions, etc. to arrive at the appropriate withholding level....

BUT, I'll play along with your numbers game. If your debtor is single with no dependents, making $50k a year and takes the standard deduction rather than itemizing (doesn't write off mortgage interest, property taxes, job expenses, etc.), he would have the standard deduction of $5700 + a personal exemption of $3650, making the taxable income $40,650.

Of that $40,650.
The first $8350 is taxed at 10% = $835
$8375 - $34k is taxed at 15% = $3844
The remaining $6650 is taxed at 25% = $1663
For a total yearly tax liability of $6342 or $528/mo.

However, if that person is a homeowner, has a child, has large medical expenses, etc. the tax liability will be lower due to the itemization of deductions & additional tax credits....

[loser104]

That $528/month is JUST your federal income tax, correct. Now, you must calculate state income tax if that applies. Then, don't you have to account for social security and medicare?????

Or am I missing something here?

[momofthree]

That $528/month is JUST your federal income tax, correct. Now, you must calculate state income tax if that applies. Then, don't you have to account for social security and medicare?????

Or am I missing something here?

Yes, you do have to account for state tax as well. However, state tax (at least in my state) doesn't have a separate w4 to fill out. When you fill out your w4 at work, it applies it to both state and federal and is pretty accurate as long as you've figured your federal accurately.

Social security and medicare cannot be changed, so you don't have to run any calculations on that, just go off of your paystub, it will already be correct.

[Michaelh]

I am panicing a bit because I think my atty screwed up my schedule I and deducted too much for taxes withheld. I am not sure where he got the number from, but it looks high. I know he uses bk software and I am guessing that where/what generated the number? I remember him asking my tax rate. To complicate issues further, I dont get paid year round so I can't just use the number in my pay stub because it's to high. I guess I just need to call him and point it out and ask where he came up with that number. If we amend it and I come up with a higher DMI, I do have other legitimate expenses I forgot to include when I filled out the schedule J, so I should be able to offset it again, but would this be a red flag to the trustee?