Welcome Guest. Register Now!  



Reply
 
LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 05-18-2009, 12:10 PM
Junior Member
 
Join Date: May 2009
Posts: 1
Question W-4 Layoff Deduction

I am getting laid off from my employer on June 30.

I am single and on my W-4 have been claiming only 1 deduction.

I will be getting a severance and vacation check, of around $14,200... minus whatever taxes are taken by the U.S. Government.

In order to increase the amount I will recieve...
because I will need the money to pay rent, purchase food, pay bills, and so on...

and in case I fail to gain good paying employment right away...

can I raise my W-4 deduction in order to reduce the amount of taxes taken from the check?

In other words, I'm willing to pay taxes on this amount at the end of the year.

I'd appreciate your advice.


Last edited by Michael Ragsdale : 05-18-2009 at 12:12 PM.


Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #2 (permalink)  
Old 05-18-2009, 06:32 PM
TaxGuru's Avatar
Tax Guru
 
Join Date: Jan 2007
Location: New Jersey, USA
Posts: 2,401
Blog Entries: 3
The IRS has provided some guidance to employers under "Revenue Ruling 2008-29" as to when and how to withhold income taxes from supplemental wages such as commissions, severance pay and signing bonuses.

This particular ruling classifies wages as either regular or supplemental and accordingly determines the amount of income tax employers must withhold. Generally speaking, Income tax is withheld from regular wages at the rate specified on the employee’s Form W-4, the Employee’s Withholding Allowance Certificate, the withholding method used by the employer and the appropriate IRS withholding tax table.

The IRS has provided employers two ways of calculating the amount of income taxes to withhold from supplemental wages:

1.Aggregate method
Under the aggregate method, the employer adds supplemental wages to regular wages and figures the taxes as if the entire amount were regular wages. The taxes already withheld from the regular wages are then subtracted from the total income tax amount, and the remaining tax is then subtracted from the supplemental payment.

2. The 25 percent flat-rate method.

Employers must use the aggregate method in two situations:

(1) if income taxes were not withheld from regular wages during the current or previous calendar year .
(2) if the supplemental wages are not separated from regular wages in the payroll records.

With respect to a lump sum payment related to vacation and sick leave, the IRS has specifically stated that lump sum payments are supplemental wages, and the employer may use either the aggregate or flat-rate withholding method.

With respect to Severance pay, the IRS has specifically stated that the severance payments are supplemental wages, and the employer may use either the aggregate or flat-rate withholding method.

Thus, in your situation, I suggest that you discuss with your HR department that the federal withholding not exceed the Flat-Rate amount of 25%. You should expect your federal withholding percentage to be not be less than 25%.

__________________
Find a CPA near you!

Ask TaxGuru Please refer to the legal disclaimer.


Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
Ads
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 
Individual
 » Income
 » IRA/Sep
 » Medical
 
Corporations
 » Payroll
 
Forum for CPAs
 
Financial Planning