Hey guys, just got an email from our payroll department asking if we want to have taxes withheld ABOVE the statutory withholding rates. Please excuse my stupidity, but can someone pls explain why withholding taxes above the statutory withholding is beneficial?
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Holding above the statutory rates is just for your planning to not have a huge tax bill at tax due date. I'm not an accountant or W2/W4 expert, but in my experience my withholdings are held based on my salary. When I get the banker bonus, it knocks you up into a new tax bracket, so you weren't paying in the next marginal tax rate during the calendar year, hence owing more taxes. In your first year or even second it shouldn't be a huge problem, but as you start to move up and earning more the marginal brackets can really ding you.
Last year I owed ~$10k and was not knowledgable enough to expect it, so this year I withheld extra. All in all, I'd rather owe in at tax date than be paid out because being paid out means you're giving the g'mnt an interest free loan, where on the flip side you can invest your estimated tax payment throughout the year in money market accounts and earn some nominal interest, but this also requires having a lump sum of cash outside of your 3-6 month cash savings.
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