Every now and then I use the IRS withholding calculator to check up on my tax situation for 2008. Link. There’s a question that’s been bothering me for a while, but I can’t find any assistance on the IRS web page.
On the income and withholding page (pg. 3 of 5), the first box says, “Enter the total wages, salary, and tips (excluding bonuses) you expect to receive in 2008.” I can’t for the life of me find any explanation if the term “total wages” actually means “total wages” or just “taxable income.” The reason this is so confusing to me is (a) on the 1040 you never enter “total wages,” but instead you enter your taxable income on the line titled, “Wages, salaries, tips, etc.” and (b) there’s a damn big difference in tax liabilities if one uses total income rather than total taxable income.
So, am I right in assuming that this calculator actually wants you to enter only your taxable income?
The next line under wages line in the calculator asks you to enter contributions to tax-deferred retirement plans and HSA’s, etc. so that’s where it would deduct non-taxable income from your wages.
I think you are incorrect. Looking at my 1040 from last year, Line 7 -“Wages, salaries, tips, etc.” is my total income before taxes. Then there are a slew of lines under that for taxable interest, dividends, etc. Subtracting credits gets us to the adjusted gross income. Subtracting deductions brings us to line 43 - Taxable Income. I think they want your line 7, not 43.
Hm. When I get my pay stub, there’s a line that says, “Gross Wages” and another that says “Federal Wages Taxable.” The latter pretty much lines up with what I get in Box 1 of my W-2 each year (which is called “Wages, tips and compensation.” The former is a significantly higher number.
I’m afraid I’m getting even more confused all the time, because based on your responses so far, it looks like my pay stub (sent from Uncle Sam) makes it look like I’m double-dipping on non-taxable income…
The difference between “Gross Wages” and “Federal Wages Taxable” is (usually) things like 401(k) contributions, deductions for flexible spending plans, etc. These contributions are taken out “pre-tax” which lowers the taxable wages reported to the IRS.
The thing is that there are TWO lines on the IRS worksheet to subtract out the two sources of nontaxable adjustments. At the top you enter your total wages. On the second line you enter your retirement contributions, etc. That brings you down to the taxable wages you would actually report on line 7 of a 1040. Then down at the very bottom of the form is a line for further adjustments. That’s where you’d subtract out other adjustments to income that you might have on your income tax form.
Ah! I entered those numbers and it all makes sense now. What the calculator spits out in terms of the tax I owe is now much more in line with what I paid last year.
If I lived in the U.S. I’d be getting a $6,614 tax return this year! And probably more since I’m unfamiliar with your various deductions for mortgage interest, etc.