Tax Withholdings Can Reduce IRS Tax Problems

The most famous tax withholdings are those withholdings from your wages by your employer. If you are technically classified as an employee, your employer will generally deduct taxes away from your payroll along with Social Security and Medicare taxes. 

The amount of withholdings will depend on your circumstances whether you are single, filing married, or head of household and the number of dependents you have. You fill out a form called W-4 claiming how many exemptions you would like the employer to account for. 

The more exemptions you have, the less taxes you will pay as you go. Notice that withholdings will be driven by the amount of wages or salary you earn. Higher wages put you in a higher tax bracket and hence larger withholdings. 

But you need to be careful not to claim too many exemptions when your reality speaks otherwise. If you do that, you will end up with tax liability at the end of the year. If you can't pay it, you may have a tax problem at hand. 

Unless you negotiate a tax settlement or a tax resolution such as installment agreement or offer in compromise, you may be subject to IRS collection actions such as IRS levy and the associated tax lien, or you may suffer from wage garnishment. Some let the problem fester so much that there may be a property seizure against them. Your CPA or your IRS tax attorney can decide the tax resolution that fits your situation. 

Military retirement payments are treated as if you are earning wages as far as withholdings are concerned. This pay is technically a retirement amount but for withholdings, it is treated as wages (see Earnest and Young Tax Guide.) 

You need to know that you are not stuck forever with the W-4 you filled out with your employer. For example, if you have a new child that you think will give enough credit and exemptions to warrant the reductions of taxes, fill out another W-4 claiming more exemptions and that will reduce the taxes taken out of your paycheck. 

If you have more than one job, you can split the exemptions between employers in such a way that you end up with the total exemptions from all employers adding up to the number that you would have had if you were working for one employer only. For example, if you should claim four exemptions and you have two jobs, you can claim all the four exemptions with one employer and zero exemptions with the other. Or, alternatively you can claim two exemptions with each employer.  

Withholdings should be viewed as tax help not as hindrance.  Bottom line you need to do what you can to avoid owing tax debt or back taxes.