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Posts tagged with: Taxes

Ashley’s 2016 Taxes

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Happy Tax Day, friends!

 

Taxes around here have never been fun. Since hubs is self-employed (and until last summer I was working contracted jobs where taxes weren’t withdrawn from paychecks), taxes are always a bit….dicey.

To be fair, we DO make estimated quarterly tax payments. We also make strategic donations that will allow us to take advantage of Arizona’s tax credit (to cover any state income tax liability).

And immediately as soon as I began working full time (started in July 2015), I began deducting HUGE amounts of my paycheck. Like, my net pay is literally half of my gross pay.

I try to take out as much as possible pre-tax:

  • Retirement contributions to our 401(k) (<note, I feel like I call it something different every time I mention it. I looked it up and the mandatory 7% is technically invested into a 401(a). On top of that, I invest another 3% in 403(b) through work. From this point forward, I’ll just refer to this as 401(k) contributions for simplicity’s sake). The mandatory 7% + extra 3% means 10% of my pay is gone right off the top.
  • Medical and dental insurance.
  • Medical savings into a flexible spending account (pre-tax money to be used only for medical purposes, which also includes covering dental work).
  • Childcare savings into a flexible spending account (again, pre-tax money that can only be used for childcare purposes).
  • Parking permit. I have to pay for a faculty parking permit, which is auto-deducted from my paycheck. I double-checked and, yes, even this is listed as being deducted pre-tax.

But even with all this stuff to help offset the tax burden…we still usually end up owing money (ahem….technically prior to the job all we did was the estimated quarterly taxes + Arizona tax credit program. But you get the idea).

Last year we ended up owing big time. To the tune of $3,500. Remember that? Not fun.

We were pretty nervous when the time came for taxes to be calculated this year. Given the new job (and all the additional withholdings/taxes), we had no idea what to expect. We’d continued making estimated quarterly payments on hubs’ income (albeit probably a bit meager compared to where they should have been), but given our giant bill last year it was a bit of a hold-your-breath situation to finally get them sorted out this year.

And – drumroll please –

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We’re officially among the nearly 80% of Americans to receive a tax refund this year!!!! (statistic source).

According to the IRS’s website, the average refund is nearly $3,000 (source). We aren’t anywhere near that figure (we’re receiving under $1,000), but I’m just thrilled to not owe money this year!!! Hallelujah! Last year I made a big deal about not over-paying taxes because it’s essentially an interest-free “loan” to the government until you receive the tax refund. But at that time, several commenters mentioned relying on the refund as though it was a big bonus from work or something similar. I still prefer not over-paying by a large amount (but to each his own, and I can appreciate differing perspectives), so I thought our refund amount was pretty incredible. Our refund is coming mostly from charitable donations we made in order to receive the Arizona tax credit. We pay up to the maximum amount allowed by state, with full knowledge that it would probably be well over our income tax liability and would, therefore, be returned as a tax refund. I LOVE this about our state (first state we’ve lived where we’ve had to pay income tax), because it’s kind of a sneaky way of helping organizations we love and feel passionately about. We give them money, then if we over-pay (which we do), the government reimburses us (not the program, itself). Charitable program still gets their money, so no harm done to them. It’s kind of like picking where we want our tax money to go (on a state level). I’m no tax expert and many stipulations apply, so if you’re curious about it then I’d encourage you to do some research and meet with an accountant or other tax professional. Anywho – that’s where most of our refund is coming from, along with a little overage being returned to us from the federal government for an over-payment of taxes there.

It really puts my mind at ease to know we didn’t have to scramble this month to set up a payment plan or magically pull $3500 from our butts (like we did last year). As our cruise is on the near horizon, I was worried whether we’d have to “borrow” from the cruise fund in order to pay taxes, etc. etc. etc. But, alas, all is well in the world and we continue on with only student loan debts remaining. No “new” tax or IRS-related debts to report. : )

How did tax day go for your and your family this year? Have you filed an extension or working furiously this evening to get taxes wrapped up? Did you get a refund weeks ago? I hope your taxes worked out as well as ours did this year!


Paycheck Blunder

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I was oh-so-excited for my very first 2-week paycheck that was direct deposited into my account on Friday. I was giddy as a child on Christmas morning opening up my bank account information online only to discover…

I got paid nearly the same for my TWO weeks of work as I did on my last check for ONE week of work (in full honesty, this check was about $80 more than last time’s check…but for a full extra WEEK of work!!!)

My jaw dropped when I saw the deposit.

IMMEDIATELY I logged into my school account to view my paycheck and find out what happened.

And, as it turns out, it’s a combination of things.

First, I hadn’t elected my benefits yet in time to have them withdrawn from my last check. The only withholding it contained was the mandatory 401(a) contribution and my taxes. In contrast, this check had OVER A THOUSAND DOLLARS of deductions (not even including taxes)!!! Ouch! I elected for a LOT of things to be withheld, including: my mandatory 7% 401(a) contribution plus an additional contribution to bring me up to 10% withheld; all our medical, dental, and vision insurances, taxes, and the BIG one is the FSA for dependent child care to the tune of $500/paycheck. That one will serve me in the long-run because it allows me to pay for childcare with pre-tax money. But it still hurts to have that all added up to be over half my paycheck!!! (also, side note: the max I can contribute to the FSA is $5,000/year. So this level of withholding allows me to use $5,000 pre-tax toward childcare in 2015, then I’ll start over again in 2016. Once I hit the $5,000 max limit these withholdings will disappear and I’ll have to pay remaining childcare costs with after-tax money)

Only…those deductions shouldn’t equate to half my paycheck!

After a more careful inspection of my paycheck I realized I’m getting paid the wrong amount!!!

I’d been hired at ($X) over a 9-month contract. That way I can either take summers off or, if there’s additional work, I can get paid extra to work over the summer (essentially securing a 25% “raise” by working over the summer). When I was hired the business manager said that most faculty members prefer to have their pay spread over a full 12 months so they don’t go without pay over the summer. She could show me how to do that. I said thanks, but never pursued it. In my own mind, I’d rather get my money up front within the 9 months. Hubs still gets paid over summer, we could set up some type of “savings” to set aside some money for summer, or I could just hustle and try to teach over the summer for additional income. But, no, I was not a huge fan of just letting them keep my money and divvy it up over 12 months. I want as much as I can get now, thank you very much.

So when I calculated what was going on it was easy to see. Apparently I’d somehow been opted into the 12-month pay cycle instead of getting paid over 9 months as I’d intended. That essentially makes my income drop 25% (since it’s being spread over an additional 3 months).

Soooo, what would you do?

My knee-jerk reaction is to go to the business office and ask them to correct it. I want to get paid over 9 months, not 12. But are there any great reasons to keep my pay over 12 months? Anything I’m overlooking?

One additional piece of information is that if I opt for 9 months of pay, then I get double-dinged for insurance payments in the Spring semester (in order to cover the unpaid summer months). If I stick with the 12-month cycle then the payments stay the same year-round.

Thoughts?