BunkMoreland wrote:Does anyone know the reason we are taxed as if we are actually making 160,000K instead of 30-37k? It's really disgusting to see how low my paycheck goes, and I have a LOT less money than I thought I was going to have. Not that I'm complaining about getting paid, but does anyone feel perturbed about giving so much to the government for free for 6-8 months, knowing we will get a huge tax refund in 2012?
+1 to those who said it's because the IRS assumes that check will be coming for the entire year. However, there may be an explicitly permitted way for you to do it (rather than messing with the exemptions). My firm sent us a form to fill out so that we could get withheld at the lower rate as long as we qualified for the "Part Year Employment Method." The form lists IRS Reg. 31.3402(h)(4)-1(c) as the source and can be found here: --LinkRemoved--)(4)-1
Good luck however you try to attack it.
You would need at least 20-25 exemptions claimed on your W4 to bring a $160,000 salary down to the $31,000 you're actually making, which firms normally won't allow because of strict IRS auditing rules. However, you can ask your firm if they will do what Rotor suggested (I believe the term is "annualize your pay") so that you end up paying 5.2x what your weekly tax would be at a regular $31,000/year job. Essentially, they figure out what your total tax liability will be, and withhold the exact amount of the liability. Talk with your payroll department, and see what they say. Note, these figures are all assuming that your summer is 10 weeks, they change slightly if its 8 or 12, and you CAN'T do this if you have other income this year, or you won't be withholding enough.
Addendum: Just checked my payroll stub and federal income taxes for 2 weeks (I'm single and have no other deductions other than the personal exemption and standard deduction) on the annual basis are $550. Compare that with what you have had withheld, and see if its worth it for you to adjust your withholding.