When times are tough, having more money on your paycheck means that you can pay more bills. With the help of your employer, the Internal Revenue Service withholds income taxes from your pay and applies the withholdings to your tax bill at the end of the year. If you don't earn enough money to owe taxes, you might be fortunate enough to skip out on having taxes withheld and fatten up that paycheck.
Withholdings on Paycheck
Your employer starts withholding taxes on your paycheck dependent on what you claim on Form W-4. On your W-4, you can claim either married or single, which determines your withholding rate. If you claim single on your W-4, as of 2013, your employer won't withhold taxes until you earn at least $42 a week, but if you claim married, the threshold rises to $160.
In addition to your withholding rate, withholding allowances play a large part in when your employer withholds taxes from your paycheck. A withholding allowance is a certain amount of your paycheck that your employer ignores when calculating your taxes. As of 2013, you get $75 per week, per withholding allowance claimed on Form W-4. For example, if you claim two withholding allowances and married, you can earn $285 ($75 times two, plus $160) per week before you have to worry about taxes.
If you don't want your employer to withhold any taxes on your paycheck, you can claim exempt. Exempt is typically used by lower-income taxpayers who had no tax liability in previous years and expect a refund of all income tax withheld. You have to be careful when you claim exempt because if your finances change during the year, you might end up owing the IRS a great deal of money.
Income Tax Return
When you file your taxes, the IRS grants you a standard deduction and an exemption deduction for each person you claim on your taxes. These deductions cut the income that the IRS taxes. For the 2013 tax year, the standard deduction for a married couple filing jointly is $12,200 and $3,900 for each exemption. If you file jointly with your spouse and claim only you and your spouse on your return, you can earn up to $20,000 a year before the IRS will tax your income. The income amount goes up $3,900 for each child you claim. If you also claim two children, you can earn $27,800 before you'll have to pay tax.
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