Paying Alimony as a Way of Decreasing Your Withholding Tax
In almost all of life’s changes, the IRS will make sure that it is part of it. Getting married, getting divorced, delivering a baby, getting a new job, buying a house and even purchasing an energy efficient car have tax implications. In this article, you will learn how alimony can cause your withholding tax to decrease and how you can get IRS assistance on this area.
There are two different methods of paying for federal income taxes. First is through the estimated tax. Usually, people who work for themselves use this. The IRS said that, “estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well.” Most employees pay their federal income taxes by withholding. Here, your employer withholds income tax from your check (this is why a big chunk of your pay seems to disappear when you get your check!). Whether the tax is withheld from your salary or from other income like pensions, gambling winnings, bonuses, or commissions, it is paid to the IRS under your name.
How much you earn and specific data in your W-4 determine the amount that is withheld from your pay. The latter includes details on whether you are withholding at the single rate or the lower married rate, how many withholding allowances you can claim, and whether you want any additional income withheld. For IRS help in determining your withholdings, try making use of their Withholding Calculator.
Alimony adjustment is one way of changing the amount that is withheld from your paycheck. To apply for this, you need to fill out a new W-4 and forward it to your employer. All you have to do to avail of this is forward to your employer a newly-accomplished W-4.
Alimony payments are taxable, hence tax reduction cannot be a result of such type of income. If are getting these, it is a good idea to accomplish a new W-4 to effect an increase in your income. Doing this will be helpful as you do not end up owing more taxes at the end of the year.
On the other hand, an expense for paying alimony is considered tax deductible. For the alimony to qualify as a tax deduction, it has to be paid in cash, through a check or through money order. If you have come up with a deal with your ex-spouse and agreed to directly settle certain bills for her/him, this arrangement is not considered as alimony. Once again, you just need to fill out a new W-4 to reflect your expenses on paying for alimony.
Your life changes —- and some situations change more drastically in a year’s time. If these happen, be sure to adjust the amount of income you have withheld from you pay.
Filed under Blog by on Oct 28th, 2009. 