Due to the methodology that the IRS uses for calculating Federal tax withholding, some nine-month employees are subject to higher marginal tax rates than they would be if they worked all twelve months of the year. As a result, more of their paycheck is withheld to cover their expected tax burden. While they typically receive much of their money back as a refund when they file their income tax, this still represents a significant impact on the overall availability of the money they’ve earned. We estimate that 25% of all nine-month employees are affected by this issue.
In order to help employees establish a level of tax withholding that more closely aligns with their actual tax obligation, we have made the following resources available:
Yes. Employees may want to adjust the number of exemptions claimed on their W-4 form. While the UW neither encourages nor discourages taking this action, this is always an option.
Use caution, if you increase your exemptions it is possible that you will owe money at tax time.
If the IRS sets your withholding allowance, you would have received a lock-in letter from the IRS indicating what your withholding allowance is.
If the IRS sets your allowances or withholdings you are unable to make changes.
To further assist with understanding what impacts the above changes will have on your take home pay, consider using an online paycheck modeling tool. Paycheck modelers can simulate the effect changing deductions, withholdings and other items will have on your paycheck and net pay. It allows you to investigate various ‘what-if’ scenarios.
For example, you can calculate what your net pay would be if you increased your federal withholding exemptions.
While we cannot promote the use of or guarantee the accuracy of one single tool, below is a list of some that are available. You can also find a variety of additional tools available on the internet.
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This document is for information purposes only and is not meant to provide financial or tax advice. Any changes you make are at your own risk.