Yesterday I mentioned earier, this Thursday will be National Tax Advice Day. Yes, it’s a fabricated holiday to sell software and services from H&R Block, but that doesn’t mean we can’t find some good information within their materials.
H&R Block has advice for those people in their first job who might be filing their taxes for the first time. They present information about the W-4 form which determined how much from each paycheck will be withheld by the IRS. Increasing your withholding (lowering your exemptions) means you may receive a big tax refund after filing — that’s money you could have been earning interest on or investing. Decreasing your withholding can result in owing the government more money than you expect. You can be penalized if you owe too much.
The best solution is to use a withholding calculator which will tell you what to enter on your W-4 form to keep the amount you owe at time of filing low.
H&R Block also suggests new workers start thinking about retirement now:
According to economists, the “time value” of money shows that if you invest an amount annually from age 20 to 30, then stop and just let your money grow until age 60, you will make just as much or more on your investments than someone who invests from age 30 to 60!
Updated July 16, 2010 and originally published January 11, 2006. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.
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You can still get hit with penalties. The IRS wants you to review your withholding throughout the year, and if not enough is being withheld, you should increase your withholding as an addition to the default exemption.
They can charge you interest. In addition, if a large amount is owed, they can charge an additional 0.5% penalty for each month taxes are late up to 25%. If you file the W-4 incorrectly you can be fined $500.
More details at Yahoo Finance.
If you enter your exemptions correctly yet your job underwithholds for you, are you really still penalized? For instance, I’m single (1) and no one can claim me as a dependent (1) = 2. That makes perfect sense. So if our finance deparment screws it up, why should I have to pay a fine?
…and yet a lot of folks 20-30 are hobbled with really large student loans to pay off and it only seems to be getting worse.