Leaving: Taxes: Withholding
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HPAlumnipedia > Leaving > Taxes > Withholding
Consider filing a W4 form ASAP to raise your exemptions, thus lower your tax withholding, for the remainder of your time on the payroll. This puts more money in your pocket sooner, although in the long run it doesn't save you anything.
Alan Silverstein, Fall 2002:
Through each year I use a personal, custom spreadsheet to estimate my income and my federal and state taxes due. After I was notified of the layoff, I cloned this spreadsheet and modified the new copy to reflect my best estimate of my new situation. To my surprise I discovered that even if I immediately raised my federal and state tax exemptions to 9 each (which I think is the most you can do without being flagged for possible IRS attention), I would still be greatly overwithheld that year. I did raise my exemptions for whatever value it had, and you might consider doing the same unless your termination date is near the end of a calendar year.
Why was I still overwithheld? I figured it out as follows. The withholding rates (27% federal and 4.63% Colorado) on my severance bonus were just about right, but earlier in the year I set up withholding as if I would be paid for an entire year. With an Oct 11, 2002 termination date this was not the case, and my lost income for 2.5 months actually made a dramatic difference in how much tax I would have owed (before receiving the bonus).
