How will i be taxed when switching jobs?

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jayk238
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How will i be taxed when switching jobs?

Post by jayk238 »

Next year I will have a substantially higher paying job than this year. About 5x increase.
The change takes place in july
How does the employer remove tax from paystub. Will they tax me at full income rate each month from july despite only working for half the year or will I be taxed at half the full amount.

If Im taxed at full amount does this mean i get a very big refund come following april?
pshonore
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Re: How will i be taxed when switching jobs?

Post by pshonore »

Generally you'll be taxed on the full amount unless you request different withholding. Are these two different employers?
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Christine_NM
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Re: How will i be taxed when switching jobs?

Post by Christine_NM »

The amount of withholding tax is determined by how you fill out your w-4 with the new employer. You can add a couple of phantom dependents to reduce withholding as long as your 1040 is done correctly. Or you can wait for the refund. Your w-4 can be redone/fine-tuned throughout the year to control withholding tax. But chances are you will be too busy working to bother with it. GL with new job.
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jayk238
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Re: How will i be taxed when switching jobs?

Post by jayk238 »

pshonore wrote: Sat Dec 02, 2017 1:57 pm Generally you'll be taxed on the full amount unless you request different withholding. Are these two different employers?
Different employers and state
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jayk238
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Re: How will i be taxed when switching jobs?

Post by jayk238 »

Christine_NM wrote: Sat Dec 02, 2017 1:58 pm The amount of withholding tax is determined by how you fill out your w-4 with the new employer. You can add a couple of phantom dependents to reduce withholding as long as your 1040 is done correctly. Or you can wait for the refund. Your w-4 can be redone/fine-tuned throughout the year to control withholding tax. But chances are you will be too busy working to bother with it. GL with new job.
If i make up stuff how do i know how much i can take without owing more? Is that possible?

In general my goal is to keep as much of the taxed money as possible and let it sit in a no penalty cd w 1.5% interest
bberris
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Re: How will i be taxed when switching jobs?

Post by bberris »

Your employer withholds payments toward the tax, but this does not determine how much tax you pay.
As long as you have at least the same amount of withholding as last year, you won't pay a penalty for underpayments.

Do you really want to play this game for 1 % interest? Just fill out the w-4 correctly and you'll be fine.
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jayk238
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Re: How will i be taxed when switching jobs?

Post by jayk238 »

1.5% interest amounts to 1000
noco-hawkeye
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Re: How will i be taxed when switching jobs?

Post by noco-hawkeye »

Agree with the others, and just fill out your with holdings in a semi reasonable manner / your best guess.

The one thing that might be applicable for a high paying job is that SS withholding reaches a max. So something like your first $120k has SS taxes on it, but after that you stop paying that tax. If you earned 60k for the first 6 months and 120k for the next 6 months, you'd have extra SS withholdings and see a refund for this portion of overpayment (you would have paid SS for 180k of income).

Congrats on your new job, good luck!
noco-hawkeye
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Re: How will i be taxed when switching jobs?

Post by noco-hawkeye »

One other thing - when people start making more and more money - the least likely thing that occurs is "I get a very big refund come following april".

:wink:
bberris
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Re: How will i be taxed when switching jobs?

Post by bberris »

jayk238 wrote: Sat Dec 02, 2017 3:14 pm 1.5% interest amounts to 1000
So you're saying you want to reduce your withholding by roughly $ 250,000. Son, you can afford an accountant.

1000/0.015 = 66,666. But you are only doing this for half a year, and the money comes in over the course of 6 months, so I'm multiplying by 4 to account for the time.
Katietsu
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Re: How will i be taxed when switching jobs?

Post by Katietsu »

I would fill out the W-4 so that I ended up with about the right withholding for 2018. There is no need to do anything now as the tax code is in flux. Generally, you do not complete a W-4 until just before you start your new job. At that time, you can determine the best way to complete the W-4. The method I would suggest is to figure out your taxes for the year. Then determine the amount needed to be withheld from each paycheck at job 2 to make that happen. Then determine the number of allowances to result in that withholding. Again, though, due to pending legislation, this may change.
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oldcomputerguy
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Re: How will i be taxed when switching jobs?

Post by oldcomputerguy »

If your employer is a US employer, I think they will be required to follow IRS Publication 15.
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overthought
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Re: How will i be taxed when switching jobs?

Post by overthought »

jayk238 wrote: Sat Dec 02, 2017 2:36 pm
Christine_NM wrote: Sat Dec 02, 2017 1:58 pm The amount of withholding tax is determined by how you fill out your w-4 with the new employer. You can add a couple of phantom dependents to reduce withholding as long as your 1040 is done correctly. Or you can wait for the refund. Your w-4 can be redone/fine-tuned throughout the year to control withholding tax. But chances are you will be too busy working to bother with it. GL with new job.
If i make up stuff how do i know how much i can take without owing more? Is that possible?
The IRS provides a handy dandy calculator for answering just these sorts of questions. You fill out some basic financial info and it tells you how many dependents to claim on your W-4. One year it told me to claim 22, which I thought was crazy, but I still got a refund that year so it was actually low. YMMV.

I should add: it's easier to use that calculator once you have a pay stub or two so you have a better idea of what your withholdings look like. Then you can update your W-4 to handle the rest of the year better.
dcabler
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Re: How will i be taxed when switching jobs?

Post by dcabler »

overthought wrote: Sat Dec 02, 2017 6:46 pm
jayk238 wrote: Sat Dec 02, 2017 2:36 pm
Christine_NM wrote: Sat Dec 02, 2017 1:58 pm The amount of withholding tax is determined by how you fill out your w-4 with the new employer. You can add a couple of phantom dependents to reduce withholding as long as your 1040 is done correctly. Or you can wait for the refund. Your w-4 can be redone/fine-tuned throughout the year to control withholding tax. But chances are you will be too busy working to bother with it. GL with new job.
If i make up stuff how do i know how much i can take without owing more? Is that possible?
The IRS provides a handy dandy calculator for answering just these sorts of questions. You fill out some basic financial info and it tells you how many dependents to claim on your W-4. One year it told me to claim 22, which I thought was crazy, but I still got a refund that year so it was actually low. YMMV.

I should add: it's easier to use that calculator once you have a pay stub or two so you have a better idea of what your withholdings look like. Then you can update your W-4 to handle the rest of the year better.
+1 Also note that, depending on when your start date is, you may also end up over-withholding on SS. It's happened to me multiple times over my career and will happen to me again this year since I started a new job in July. But it does get taken care of when you file your taxes.
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jayk238
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Re: How will i be taxed when switching jobs?

Post by jayk238 »

dcabler wrote: Sun Dec 03, 2017 6:34 am
overthought wrote: Sat Dec 02, 2017 6:46 pm
jayk238 wrote: Sat Dec 02, 2017 2:36 pm
Christine_NM wrote: Sat Dec 02, 2017 1:58 pm The amount of withholding tax is determined by how you fill out your w-4 with the new employer. You can add a couple of phantom dependents to reduce withholding as long as your 1040 is done correctly. Or you can wait for the refund. Your w-4 can be redone/fine-tuned throughout the year to control withholding tax. But chances are you will be too busy working to bother with it. GL with new job.
If i make up stuff how do i know how much i can take without owing more? Is that possible?
The IRS provides a handy dandy calculator for answering just these sorts of questions. You fill out some basic financial info and it tells you how many dependents to claim on your W-4. One year it told me to claim 22, which I thought was crazy, but I still got a refund that year so it was actually low. YMMV.

I should add: it's easier to use that calculator once you have a pay stub or two so you have a better idea of what your withholdings look like. Then you can update your W-4 to handle the rest of the year better.
+1 Also note that, depending on when your start date is, you may also end up over-withholding on SS. It's happened to me multiple times over my career and will happen to me again this year since I started a new job in July. But it does get taken care of when you file your taxes.
You mean they hold from u more than they should for ss but on ur refund this is included?
dcabler
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Re: How will i be taxed when switching jobs?

Post by dcabler »

jayk238 wrote: Sun Dec 03, 2017 7:50 am
dcabler wrote: Sun Dec 03, 2017 6:34 am
overthought wrote: Sat Dec 02, 2017 6:46 pm
jayk238 wrote: Sat Dec 02, 2017 2:36 pm
Christine_NM wrote: Sat Dec 02, 2017 1:58 pm The amount of withholding tax is determined by how you fill out your w-4 with the new employer. You can add a couple of phantom dependents to reduce withholding as long as your 1040 is done correctly. Or you can wait for the refund. Your w-4 can be redone/fine-tuned throughout the year to control withholding tax. But chances are you will be too busy working to bother with it. GL with new job.
If i make up stuff how do i know how much i can take without owing more? Is that possible?
The IRS provides a handy dandy calculator for answering just these sorts of questions. You fill out some basic financial info and it tells you how many dependents to claim on your W-4. One year it told me to claim 22, which I thought was crazy, but I still got a refund that year so it was actually low. YMMV.

I should add: it's easier to use that calculator once you have a pay stub or two so you have a better idea of what your withholdings look like. Then you can update your W-4 to handle the rest of the year better.
+1 Also note that, depending on when your start date is, you may also end up over-withholding on SS. It's happened to me multiple times over my career and will happen to me again this year since I started a new job in July. But it does get taken care of when you file your taxes.
You mean they hold from u more than they should for ss but on ur refund this is included?
No, I mean that as far as SS with-holdings are concerned, each company you work for treats it as if their company is the only one you worked for that year. The with-holdings are solely dependent on your earnings at your present company. Then there is a max dollar amount you can contribute each year, regardless of how many companies you work for. So, if you switch companies sometime during the year, there is a chance that the sum total of SS with-holdings will be in excess of the max amount that should be with-held. You'll show all with-holdings when you do your taxes and you'll get a refund.

My personal example: I earn enough such that I'm usually maxed out by May or June of any given year. I switched companies in July, with a slight raise. Again, I'm likely to have the entire allowed SS with-held once again from my new company. So I'm likely to have had 2X the max amount with-held over the course of the year by having maxed out at both companies. So the excess is coming back to me as part of my refund.
staythecourse
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Re: How will i be taxed when switching jobs?

Post by staythecourse »

dcabler wrote: Sun Dec 03, 2017 8:00 am So, if you switch companies sometime during the year, there is a chance that the sum total of SS with-holdings will be in excess of the max amount that should be with-held. You'll show all with-holdings when you do your taxes and you'll get a refund.
Correct. This will happen and is annoying. Happening to my wife right now. Oh well at least the refund does come some time.

Good luck.
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runner540
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Re: How will i be taxed when switching jobs?

Post by runner540 »

staythecourse wrote: Sun Dec 03, 2017 8:31 am
dcabler wrote: Sun Dec 03, 2017 8:00 am So, if you switch companies sometime during the year, there is a chance that the sum total of SS with-holdings will be in excess of the max amount that should be with-held. You'll show all with-holdings when you do your taxes and you'll get a refund.
Correct. This will happen and is annoying. Happening to my wife right now. Oh well at least the refund does come some time.

Good luck.
+1 It's a high class problem, because it means you earned over $127,200 in the year. Definitely pay attention as you fill out your taxes for 2017. As mentioned above, if you are talking about a seven figure salary (implied by 1.5% interest on the withholding being $1000), it would behoove you to talk to a CPA and make sure you are optimizing all financial decisions in the context of taxes.

Remember that if you contribute to a 401k or HSA, those limits apply to YOU, across all employers for the year. If you already max your 401k at the first job January-June, you can't contribute any more at the new job that starts in July.
staythecourse
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Re: How will i be taxed when switching jobs?

Post by staythecourse »

runner540 wrote: Sun Dec 03, 2017 4:55 pm Remember that if you contribute to a 401k or HSA, those limits apply to YOU, across all employers for the year. If you already max your 401k at the first job January-June, you can't contribute any more at the new job that starts in July.
Good points to remember. When my wife changed jobs in the fall I maxed out her 401k BEFORE she left as she is not eligible for her new one until 1/2018. Luckily, I did think of that one.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
Not Law
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Re: How will i be taxed when switching jobs?

Post by Not Law »

Withholding tables essentially take your annualized income, less your standard deduction and exemptions and assume your tax is as per the tax tables. Divide that by the number of annual pay periods and that is what is withheld. So, you need to declare additional dependents if you file a schedule A with itemized deductions. Keep in mind that there is likely to be a change in the tax law for next year. The IRS will not be producing the employer withholding schedule until about two to three months after it is signed into law. If there are no longer personal exemptions, it could radically affect your withholding/taxable income.
overthought
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Re: How will i be taxed when switching jobs?

Post by overthought »

runner540 wrote: Sun Dec 03, 2017 4:55 pm Remember that if you contribute to a 401k or HSA, those limits apply to YOU, across all employers for the year. If you already max your 401k at the first job January-June, you can't contribute any more at the new job that starts in July.
In my experience, 401(k) administrators do a reasonably good job coordinating so you can't accidentally over-contribute at the new job. HSA administrators, on the other hand, will completely mess you up with automatic contributions, and then not give you the time of day when you ask for help fixing it.

Employee emptor.
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jayk238
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Re: How will i be taxed when switching jobs?

Post by jayk238 »

runner540 wrote: Sun Dec 03, 2017 4:55 pm
staythecourse wrote: Sun Dec 03, 2017 8:31 am
dcabler wrote: Sun Dec 03, 2017 8:00 am So, if you switch companies sometime during the year, there is a chance that the sum total of SS with-holdings will be in excess of the max amount that should be with-held. You'll show all with-holdings when you do your taxes and you'll get a refund.
Correct. This will happen and is annoying. Happening to my wife right now. Oh well at least the refund does come some time.

Good luck.
+1 It's a high class problem, because it means you earned over $127,200 in the year. Definitely pay attention as you fill out your taxes for 2017. As mentioned above, if you are talking about a seven figure salary (implied by 1.5% interest on the withholding being $1000), it would behoove you to talk to a CPA and make sure you are optimizing all financial decisions in the context of taxes.

Remember that if you contribute to a 401k or HSA, those limits apply to YOU, across all employers for the year. If you already max your 401k at the first job January-June, you can't contribute any more at the new job that starts in July.
My bad. My calculation was based on the whole year. My income is approx around 250. The tax i calculated was for 66000. W a 1.5 interest it amounts to approx 1000.

Sorry.

Im not becoming filthy rich :)
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jayk238
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Re: How will i be taxed when switching jobs?

Post by jayk238 »

overthought wrote: Mon Dec 04, 2017 7:49 am
runner540 wrote: Sun Dec 03, 2017 4:55 pm Remember that if you contribute to a 401k or HSA, those limits apply to YOU, across all employers for the year. If you already max your 401k at the first job January-June, you can't contribute any more at the new job that starts in July.
In my experience, 401(k) administrators do a reasonably good job coordinating so you can't accidentally over-contribute at the new job. HSA administrators, on the other hand, will completely mess you up with automatic contributions, and then not give you the time of day when you ask for help fixing it.

Employee emptor.
This is good to know
runner540
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Re: How will i be taxed when switching jobs?

Post by runner540 »

jayk238 wrote: Mon Dec 04, 2017 7:14 pm
overthought wrote: Mon Dec 04, 2017 7:49 am
runner540 wrote: Sun Dec 03, 2017 4:55 pm Remember that if you contribute to a 401k or HSA, those limits apply to YOU, across all employers for the year. If you already max your 401k at the first job January-June, you can't contribute any more at the new job that starts in July.
In my experience, 401(k) administrators do a reasonably good job coordinating so you can't accidentally over-contribute at the new job. HSA administrators, on the other hand, will completely mess you up with automatic contributions, and then not give you the time of day when you ask for help fixing it.

Employee emptor.
This is good to know
This is mt experience too, if you're at the same company all year, but The new company's 401k will have no idea how much you contributed earlier in the year at another company.
dcabler
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Re: How will i be taxed when switching jobs?

Post by dcabler »

runner540 wrote: Tue Dec 05, 2017 11:24 am
jayk238 wrote: Mon Dec 04, 2017 7:14 pm
overthought wrote: Mon Dec 04, 2017 7:49 am
runner540 wrote: Sun Dec 03, 2017 4:55 pm Remember that if you contribute to a 401k or HSA, those limits apply to YOU, across all employers for the year. If you already max your 401k at the first job January-June, you can't contribute any more at the new job that starts in July.
In my experience, 401(k) administrators do a reasonably good job coordinating so you can't accidentally over-contribute at the new job. HSA administrators, on the other hand, will completely mess you up with automatic contributions, and then not give you the time of day when you ask for help fixing it.

Employee emptor.
This is good to know
This is mt experience too, if you're at the same company all year, but The new company's 401k will have no idea how much you contributed earlier in the year at another company.
Correct - I usually front load my 401K by maximizing withholdings at the beginning of the year. It's mainly because my industry tends to have its layoffs in the second half of the year. Well, wouldn't you know it, my previous company shut down its offices in town at the end of May. But I had already maxed out for the year by then. This company doesn't do a traditional matching, but they do make a deposit into the 401K in the April timeframe based on the company's previous year's performance, so I got that too. :sharebeer

Started the new company in July and had to go in and turn off the automatic with-holdings for 401K. As always, I'll have withholdings start in January for the maximum percentage allowed by my company and will max out in the dollar amount in pretty short order. This company does a traditional matching percentage based matching. Only downside is that all of the matching won't appear until the following year when they do a "true-up". But with only a few years left till retirement, that's OK by me.
bloom2708
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Re: How will i be taxed when switching jobs?

Post by bloom2708 »

https://www.paycheckcity.com/calculator/salary/

You will fill out a new W-4 for the new employer.
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