Part 1. Tax Withholding.
It's a new year, so you may want to take a quick look at your tax withholding status, especially for those of you who...
- bought a house
- sold a house
- got married
- had a baby
Here's the thing though. If you are having too much money taken out of your paycheck each month and then getting paid back a bunch of it at the end of the year, you are in essence giving the government an interest-free loan. Now, maybe you find some nobility in helping fund the billion dollar bail-outs of the banking and auto industries, but you're financially better off if you have just the right amount of taxes withheld each month. The extra money that was going to the government could be going into your savings account and earning interest for YOU. ...OR!!! It could be going to paying for a babysitter and a nice dinner for you and your spouse to have a date without the kids each month.
When we lived here in Ashburn before, we were married with two kids and a mortgage, and I had my withholdings set to the maximum (10 on the MyPay website), and we still got a few hundred dollars of a tax return at the end of the year.
While we were in Hawaii living in Navy housing (so no mortgage), I turned our withholdings down to 4 because I expected to pay more taxes.
Now that we're back in Ashburn in a very similar situation as our last tour here, I cranked our withholdings back up to 10.
How do you know how many withholdings to claim? You can use this calculator at the IRS website.
How do you change your tax withholdings? For military service members, go to the MyPay website. After you log in, select "Federal Withholding" from the main menu under "Taxes."
Note this page also has a link to the IRS withholding calculator. At the bottom of the page, you can change your number of exemptions.
Don't forget to click "Save" before you click away elsewhere from that web page.
I periodically get emails from junior officers and midshipmen asking for advice on stuff. If you have a question, please feel free to email me. I might not know the answer, but hopefully I'll at least be able to point you in the right direction where to find the answer.