How Does Tax Withholding Work?

how does federal tax withholding work

Does tax withholding reduce my taxable salary? I'm having a tough time visualizing how exactly I'm taxed. If I make $60,000 a year, that's my gross income. If I invest $10,000 of that in a Traditional 401k, which is a deduction, my adjusted gross income (AGI) is 50,000. Here is where I get. show more Does tax withholding reduce my taxable salary? I'm having a tough time visualizing how exactly I'm taxed.

If I make $60,000 a year, that's my gross income.

If I invest $10,000 of that in a Traditional 401k, which is a deduction, my adjusted gross income (AGI) is 50,000.

Here is where I get confused. I know that I get a personal exemption ($3,800) and a standard deduction ($5,950). Do I subtract my personal exemption and standard deduction from my AGI? So my taxable salary is 50,000 - (3800+5950) = $40,250?

Do I accomplish this by withholding money on my W-4? I do not want

to receive a fat refund at the end of the year, rather I want to withhold that refund and get some of it in each paycheck.

Thanks for helping!

Update: I'm still a little confused. I don't understand where the standard deduction and personal exemption come into play. Am I taxed less automatically by updating my W-4? What I'm trying to get at is, I don't want to give the government an interest-free loan with my money, and I want to hold onto as. show more I'm still a little confused.

I don't understand where the standard deduction and personal exemption come into play. Am I taxed less automatically by updating my W-4? What I'm trying to get at is, I don't want to give the government an interest-free loan with my money, and I want to hold onto as much as my tax money as possible. Simultaneously, I'm trying to reduce my taxable income as much as possible.

Source: answers.yahoo.com

Category: Taxes

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