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  • Taxes

    Note: DH's rank is E4 (2yrs serivce), we were on IADT orders for the past 2 years (BCT, DLI, then AIT). We have two children and file taxes married filing jointly. We claim 5 exemptions on state and fed W-4's because our tax liability is usually $0 due to BAH and BAS being non-taxable.

    While DH was in DLI (for some of 2008, all of 2009, and some of this year) they weren't really withholding any federal taxes. For 2009, they withheld just under $100 of taxes, and then stopped withholding taxes after the Making Work Pay credit thing happened. Our tax liability for 2009 was $0, plus we qualify for EIC and Child tax credits.

    Well, as of Oct 1, 2010 (he graduated from AIT on Sept 30) $0 had been withheld for fed income tax, and $450 had been withheld from State income tax (the income tax rate for UT is 5%). His YTD wages for E4(2 yrs) at that point were about $17000.

    When he graduated, he cashed out his leave, which gave him about $993.15 of base pay (15 days of leave). They took out $248.49 for federal income tax. They haven't taken out ANY income tax all year long, and then suddenly they take out federal taxes at a 25% rate? Even though we're claiming 5 exemptions? And they withheld more than 5% in state taxes?!

    Then, yesterday he gets his first Full Time Guard paycheck (he's working FT for the guard as of Oct 21 - and had NO JOB between Sept 30 and Oct 21, we were waiting for his hand off so he could get the FT job with the guard). The first half of his $20k signing bonus was also in the paycheck, so they took out $2500 in fed income tax, which sounds about right (even though we'll get it all back in our tax return...).

    However, the state inc tax is what gets me...

    UT's inc tax rate is 5%, right? So 5% of 10k is $500... but they took out $686.70. The base pay on that LES was $662.10. EVEN IF you considered the ENTIRE PAYCHECK to be taxable (BAH & BAS as well as basic pay) 5% of that paycheck is only $556 and some change.

    Is this normal for the Guard to completely ignore your preferences that you filled out on your W4? And withhold more than the standard tax rate for your state? (I'm not talking FICA or anything - JUST income tax).

  • #2
    Re: Taxes

    You can adjust your W4 on the mypay website.

    It works, I did it myself not too long ago.

    Comment


    • #3
      Re: Taxes

      Talk to a tax professional in your area - it would be useful if he/she is also familiar with military related expenses and deductions such as those that can be claimed via ((Job Expenses and Certain Miscellaneous Deductions) for employer US Army/ARNG) Unreimbursed employee expenses—Schedule A, 1040, and the state tax code in your state. This will give you the best way to find out how to maximize your military related deductions and offset your tax liability after family exemptions.

      There may be someone in your State Area Command that is a tax subject matter expert, or can refer you to one; as well your unit may have some info/points-of-contact to help you sort out why you were paid the way you were, etc.

      This post/question would best be given to a tax pro; this is probobly not the most appropriate forum for discussing your personal finances and tax situation... but that is only my view, you may want to consider revising your post a little...
      Last edited by LRSU_Dog; November 4th, 2010, 11:57 PM.

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      • #4
        Re: Taxes

        There's not a whole lot personal about a military member's finances Once you know rank, anyone can find out how much you make. And same with taxes (in general) - if you know what state they live in (have residence in).

        My question is not so much about the taxes as about why the military can take out more than the tax rate. And, @Chaplain, we changed the W4 on MyPay, and the LES shows the exemptions, but they still took out WAY too much in taxes. And it was only on two LES's, they usually don't take out that much. Is it just because the one paycheck was so high the system calculated us in a higher tax bracket even with the exemptions?

        I'm not asking for tax advice - just want to know how on earth that is legal (for a company to withhold more than the state's tax rate).

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        • #5
          Re: Taxes

          I don't know about state taxes, because I live in Texas where there's no state income tax, but I can tell you that what happens when you get a large payment, such as a bonus, etc. does mess with the computer's brain. Example, teachers get their entire summer school money in one big check, throws their salary into a 30% tax bracket, because all of a sudden instead of getting their normal $3500-4000 monthly check, the summer school amount of around $2600 is thrown on there as well. Computer thinks this is the new monthly check, teacher is in a ridiculous 30+% tax bracket, and teacher complains about too much being withheld, no remedy is given. have to wait until February, file return to get refund.

          I do have a remedy, and that is to plan ahead, and make a big adjustment ahead of time. If I were about to receive a 10k bonus and I had a family, I would adjust my withholding big-time, as in I would go in and change it to M-8, M-9, etc. Immediately after receiving check, I would go back in and change it back to a normal amount.

          only problem with this strategy is nobody knows for sure how high you have to raise the withholding number to get the correct $ withheld. And I bet if you tried to call somebody at DFAS, you would have one heckuva time finding somebody who actually knows how the computer's brain is wired.

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          • #6
            Re: Taxes

            one other thing, since you're just starting out, it might pay off to do some actual research, that way you will be able to strategize for the future. I suggest contacting the IRS, I would think they have the actual table you could look at. Do the same thing for the state, your agency should have a table.

            And that table might change, due to laws, example the making work pay tax credit that we had last year and will this year, that change might be incorporated into the witholding amount or not. It might not, because not everybody is eligible for making work pay.

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            • #7
              Re: Taxes

              Thanks 49thadband - that actually makes sense... annoying, but make sense. Heh, and I don't think there are enough exemptions in the world to get them not to take out that much taxes from someone getting a $10000 paycheck every month

              Thanks again.

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              • #8
                Re: Taxes

                The bonus is not income and is taxed at a different (much higher) rate.

                Comment


                • #9
                  Re: Taxes

                  but there is, that's where the research comes in. you might have to contact the IRS to find out how many exemptions you need to claim, but there is a number. (there might even be a formula you can try at irs.gov) example, in my family we have an unusual tax credit for our home called a Mortgage Credit Certificate, so every year we start off with $4000 of tax credits, 2 children and the $2000 Mortgage Credit. So, even though we only have four people, I claim either M-7 or M-8. Even if you have to go up to M-15, M-16 whatever, that's how the sytem works.

                  Cyall, I have no idea how you think a bonus is not income. It is absolutely income, and if you read one of my prior posts I explained how the computer thinks that is the new monthly amount, and that is the only reason so much is taken out.

                  Of course to execute this strategy properly, you must change the withholding back the day your bonus hits the bank account, to get it back to normal.

                  Comment


                  • #10
                    Re: Taxes

                    Originally posted by RowleyArmyFamily View Post
                    There's not a whole lot personal about a military member's finances Once you know rank, anyone can find out how much you make. And same with taxes (in general) - if you know what state they live in (have residence in).

                    My question is not so much about the taxes as about why the military can take out more than the tax rate. And, @Chaplain, we changed the W4 on MyPay, and the LES shows the exemptions, but they still took out WAY too much in taxes. And it was only on two LES's, they usually don't take out that much. Is it just because the one paycheck was so high the system calculated us in a higher tax bracket even with the exemptions?

                    I'm not asking for tax advice - just want to know how on earth that is legal (for a company to withhold more than the state's tax rate).
                    Working for the government is different than the private sector in regards to how pay works. Government pay is for public knowledge. That is why we know what our public officials make. Obviously you learned that BAH and BAS is something the government uses (allowances that are not taxed) compared to base pay. The beauty of this is that you get money that is not taxed which places you in a lower tax bracket.

                    The other comments were correct that its up to the individuals to place the right dependents in MYPAY. Perhaps, federal tax was so low due to the amount of dependents he was claiming.

                    You can always call military one source at the number on their website (www.militaryonesource.com) for tax questions.

                    Also, you if have access to a base that has a tax center, you can get your taxes filed for free.

                    As well, if you believe the pay can be incorrect, the soldier can have finance do a pay inquiry which basically does an audit of his pay to make sure that his pay is in order. Just ensure that he has a copy of all the LES in question.

                    Military pay problems are commonplace but its up to the soldier to address them as soon as possible if he or she sees something that is not right.

                    Comment


                    • #11
                      Re: Taxes

                      I forgot to mention that some states exempt taxes for military members. Read the tax document for your state and again, use that expertise of that tax advisor that does your returns.

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                      • #12
                        Re: Taxes

                        A bonus is not income. It is an irregular payment made when certain conditions are met. In this case completeing IET was the trigger. Bonuses are taxed at a different rate than normal income. I read you post and I don't think it applies. The higher withholding is a result of a bonus payment being taxed at a higher rate not the system thinking it was a new income. Your example was a teacher getting several months of regular monthly checks at once. That isn't a bonus; it's income. It isn't the same situation and doesn't apply.

                        Comment


                        • #13
                          Re: Taxes

                          Originally posted by cyall View Post
                          A bonus is not income. It is an irregular payment made when certain conditions are met. In this case completeing IET was the trigger. Bonuses are taxed at a different rate than normal income. I read you post and I don't think it applies. The higher withholding is a result of a bonus payment being taxed at a higher rate not the system thinking it was a new income. Your example was a teacher getting several months of regular monthly checks at once. That isn't a bonus; it's income. It isn't the same situation and doesn't apply.
                          Whatever you want to call it from an accounting standpoint, in practice the IRS treats military bonuses as income (reference: IRS Publication 3, Table 1; 2010 Edition). The money will appear on your W2 at the end of the year, and will figure into your Adjusted Gross Income (AGI). Whether it's salary, bonus, tips, or bribes (yes, bribes are taxable), it's all taxed at the same rate. But then why did a larger percentage of my bonus get withheld than on my usual paycheck? Through the somewhat clumsy pay-as-you-go system of withholding.

                          The difference between tax rate and withholding rate is a bit nonintuitive. Because our income tax system is indexed progressively based on AGI, and we pay taxes per paycheck through employer withholding, a sudden spike in income can trigger additional withholding to ensure that you have paid proportionately throughout the year. The government doesn't want you to get to April 15 and pay your entire tax bill at once, because (1) you won't actually have that much money in one lump when the time comes, and (2) you'd start a revolution. Thus, they garnish our wages throughout the year. If you make a low income, and have withholding figured at 10%, a spike of an additional $10k all at once may push you into the next bracket. The IRS doesn't know if this is a one-time event, or you just got a big promotion at work, so they err in their own favor. The IRS rules governing withholding enjoin your employer to annualize that income level, determine which bracket you fall into (and thus, the withholding rate), and apply the appropriate rate. Next month, when your paycheck goes back to its normal amount, your withholding will decrease as well.

                          What your employer withholds and what you actually pay are two different numbers, and can vary widely. Many people get back all the federal income tax they pay throughout the year (almost half of wage earners in the nation effectively pay no federal income tax). Some must pay extra. Ideally, you want to be within $100 above or below. Otherwise, you either face penalties for underpayment, or you overpay and end up giving a free loan to the government and forego the opportunity to utilize your own money throughout the year. Yes, you get that refund, but you earn no interest.
                          Last edited by matthew.ritchie; November 25th, 2010, 01:00 PM. Reason: clarity

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                          • #14
                            Re: Taxes

                            Sir,

                            My compliments on a very informative post.

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