How do I determine if I will owe taxes at end of year? (USA)

Question

Please help!

I started work as a New Grad/Non-Exempt ~4 months ago in beginning of August in California. I fall into the 37-90k tax bracket giving me 25% rate.

I claimed 2 on my W4 because I thought I would need the extra money in my paychecks to pay for rent each month. Now I am wondering if I will owe or get a tax refund at the end of the year.

I also have 30k+ in Student Loans that I haven't started to pay yet.

I have noticed that so far I have been taxed ~26% on my paychecks.

Answer 1

There are a few methods you can use to estimate your taxes.

1. The IRS has a Withholding Calculator app that is used to determine what the appropriate number of exemptions you should claim on your W-4. To use it, collect all of the paystubs you've received this year. Here is an explanation of some of the things it will ask you for:
   • Gross wages you expect to receive this year. To get this, add up your gross paycheck amounts (before any deductions) from all of your stubs, and add in the amounts from the rest of the paychecks you expect to receive yet this year.
   • Total contribution to a tax-deferred retirement plan. If you've been contributing to a 401(k), enter the total here that you will have paid by the end of the year.
   • Total contribution to a cafeteria plan. If you pay for health insurance or other benefits out of your paycheck that are pre-tax, enter the total for that.
   • Total federal income tax withheld to-date. For this, include only Federal income tax withheld (not Social Security, Medicare, FICA, State tax, etc.). Only include the amount that has been taken out of your checks so far, not what you expect will be taken out of your next check.
   • The app will also ask you about any deductions. If you expect to take the standard deduction and not itemize, you can leave this page blank and just hit "Continue."

On the results screen, the app will show you your estimated tax burden, your estimated withholding for the year, and your estimated overpayment/refund or shortfall/tax due. It may also have recommendations for you on how to adjust your W-4 (although, this late in the year, I think it only tells you to come back next year to reevaluate).

2. The other way to estimate is to essentially do what the app did, but manually. To do this, download the 2016 edition of Form 1040, and do a mockup of your tax return, using your paystubs (and any amounts you expect to see on your future paystubs). Your wages (Line 7) will be your gross paycheck from your paystubs minus all of the pre-tax deductions (401(k), health insurance). Enter the standard deduction on line 40, your personal exemptions amount on line 42, and look up your tax from the tax tables on the instructions. On line 64, you would total all of the Federal income tax that you expect will be withheld from your past and future paychecks for 2016.

Your state might also have income tax, and if you are curious about that, you can find the state tax form and estimate your state income tax as well.

My guess is that you will be getting a refund this year, as you have only worked half of the year. But that is only a guess.