From: ask@cbnews.cb.att.com (Arthur S. Kamlet)
Subject: Re: Yikes! Am I Facing a Tax Penalty?
Organization: AT&T Bell Laboratories,  Columbus, Ohio
Distribution: usa
Date: Sun, 13 Dec 1992 23:25:29 GMT

In article <1992Dec13.213532.16678@cbfsb.cb.att.com> sbrenner@cbnewsb.cb.att.com (scott.d.brenner) writes:
>I was just looking at my wife's and my last paycheck for 1992 (We're
>paid monthly and will receive our December pay in January of next
>year.)  This is the first year that we contributed to our 401(k)
>plans, thus reducing our taxable income.  I calculated the taxes
>that were withheld as a percentage of wages earned and got a little
>frightened at what I saw.


First off, relax.

Things are not so bad, and might even be pretty good.

Unfortunately I'm not where I have tax tables so what I'm going to
say here is winging it, but overall, it seems like you're pretty
much OK.  Someone with tax tables can help me out here.

>
>Here's the data:
>
>	wife's Federal Tax:	19.56% of taxable wages
>	wife's FICA:		 7.23% of total wages
>	wife's New Jersey Tax:	 3.92% of taxable wages
>
>	my Federal Tax:		13.84% of taxable wages
>	my FICA:		 7.65% of total wages
>	my New Jersey Tax:	 3.37% of taxable wages
>
>Here are my questions:
>
>1. Based on our combined income, and our filing status of 
>   "Married filing jointly," we are in the 28%/31% bracket.
>   I forget if FICA is considered "part of" the 28%/31%, but
>   I think it is.  My wife's combined Federal tax plus FICA
>   is about 26.5%.  My combined Federal tax plus FICA, though,
>   is only 21.5%.  Why isn't it higher?  We didn't change our
>   withholding allowances from last year.  Has my employer
>   taken out enough tax for me?



Lots of different questions.  Let's do one at a time.

First, ignore the FICA stuff.  It does not count as part of your
Federal "Income" Tax which you will file on Form 1040 next year.
It does not count towards this 28/31 figure that's worrying you.
It's an amount that all employers take out of your taxable wages and
that's thart.  Done.  Gone.  Forget it.

You can check later on to see if your employer overwithheld your
FICA payments, but chances are the FICA was correct.

Next:   Federal tax rates are graduated.  That means there is no tax
at all on the first few thousand dollars of taxable income, 15% tax
on the next umpteen thousand (someone posted the actual figures
about a week or so ago), 28% for the next umpteen thousand, and 31%
above that  (plus for really big spenders, the effective rate grows
further for a while before returning to 31% --- it would seem you're
not in this last category.)

So the 31% is NOT on all of your taxable income -- just on some
amount above the 28/31 threshold.   And the 28& is not on the rest --
just the amount above the 15/28% threshold ---


As you already realize,  some income is not taxable:  the funds in
your company's 401(k) plan are not taxable and if you participate in
a Health Care Reimbursement plan and have some amount from you pay
placed into this plan, that amount is not taxable.

Also you get to deduct a personal exemption for both you and your
wife from your adjusted gross income before even going to the tax
tables.  Remember to deduct this.

You ask why witholding changed from last year when you didn't do
anything differently.  Earlier this year President Bush thought if
people had a few more bucks in their pocket they would spend more
and create jobs and he would get re-elected, so he ordered that a few
bucks less be withheld from your paycheck.   This is not a huge
amount at all, but was a few bucks a week, and over all these weeks
it is noticable.  He didn't change how much tax you owe -- just
withheld less money now and payback time is coming.


>   I'm aware that a penalty may be due if something like 90%
>   of last year's tax amount isn't withheld and/or we end up
>   owing more than a certain dollar amount. (I forget what it
>   is.)  Am I in trouble here?


From what you say, it sounds like you never filed an estimated tax
form  (Form 1040ES).  If that's true, the rule is easy.  You miust
have had withheld from your pay (or paid estoimated taxes -- but I
suspect you didn't) either of these:

   1) 90% of the taxes on your 1992 income, or

   2) 100% of the taxes on your 1991 income.

If you were OK last year there's a real good chance you're OK this
year too.  You can get a form 2241 (I think -- call the IRS at
 800-TAX-FORM and ask them to send it to you -- it's the form for
figuring your (possible) penalty.  Or wait until you get your taz
form shortly after Christmas and do some preliminary calculations.

If it looks OK by real early January, you're OK and need do nothing.
Otherwise you can file a Form 1040ES by January 15 with enough of a
payment to meet one of the two rules above.  (The 100% of last year
is the easiest rule -- a real no-brainer since you know how much your
tax was last year and how much was withheld this year.)

>2. I thought that FICA was 6% social security and 1.65% Medicare/
>   Medicaid.  My percentage (7.65) was right on the button.  Why
>   is my wife's not the same (7.23)?

There may be Child/Elder/Health care plans and 401(k) plans which
distort the figure, and your or her employer may attribute certain
income assigned to pay for your benefits as FICA taxable.  In any
case check with the payroll office if any questions.

(I don't remember if the 6% and 1.65 are correct, but won't argue
either.)

>
>3. For my fellow New Jerseyites:  I though the State income tax on
>   people in the salary range of my wife and I was more like 6%.
>   Should I be concerned that only 3.92% has been withheld from
>   my wife and only 3.37% has been withheld from me?  Am I going
>   to be in trouble with Trenton?  Does New Jersey impose a 
>   penalty similar to the Federal one if not enough tax was
>   withheld?
>


I moved from NJ the year before they started the income tax, so I
can't answer.   But the same answers for federal tax probably apply:
The tax is probably graduated.

>4. IS THERE ANYTHING I CAN DO RIGHT NOW BEFORE THE END OF THE
>   YEAR TO AVOID PENALTY PAYMENTS NEXT APRIL 15?


Sure,  Calm down.  Relax. There's a real good chance there's no
problem at all.

Get a tax form from NJ and do a rough calculation once you've done
your federal one.

I would suspect NJ copies federal concerning penalties, they want
theris too.  But you may have no problem.   Sit down calmly and
figure it out with the tax forms.

>   I heard there was a form available from the IRS that would
>   let you calculate your 1992 Federal tax due.  Does anyone
>   know the form number?


Your employer has a Form w4 --  the w4 worksheet sort of -- I
emphasize the sort of -- lets you figure how many deductions to
claim/

I think the 2241 is used to figure any possible penalty.

>
>   If I can get a fairly accurate estimate of my tax bill and
>   I find that my wife and I have NOT had enough withheld to
>   avoid penalties, can I make a tax payment NOW (prior to the
>   end of the year) that would let us avoid a problem in April?

A Form 1040ES(1992)   File it by Jan 15,  if necessary.   And
don't worry or lose any sleep over it.

>   Or am I pretty much screwed at this point?
>
>
>I'd appreciate any information or pointers that you could give
>me.  Please respond directly to sbrenner@attmail.com if possible
>so I can read your message right away.  I'll try to summarize
>the reponses and post them in a few days.
-- 
Art Kamlet  a_s_kamlet@att.com  AT&T Bell Laboratories, Columbus