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How to Properly Fill Out a W-4

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You and a co-worker earn the same amount, contribute the same percentage to a 401(k), but someone she’s getting more deposited into her bank account? What gives? The answer lies in one of the many pieces of paper you filled out during the first day on the job: the W-4.

What is a W-4?

When you start working for a company, they have to determine how much of your paycheck to withhold for taxes. While the company has basic tax withholding guidelines they need to abide by, paychecks can be customized to employee’s situations. This done by filling fill out a W-4 form. Your HR department keeps this IRS form on file, and uses it as a guideline on how much to withhold and send to the IRS every payroll period.

Sounds simple enough, what can go wrong?

The main culprit is caused by not claiming enough, or too many, dependents. On the form, you can state how many people in your household depend on your income (in tax language, a “dependent”). If you are married and have two kids, then this number would be four. You can then advise HR that you want to claim four dependents. In doing this, you will receive a larger paycheck so you can support your family. However, in selecting a larger number, you may not be having enough taxes withheld, which will lead to you owing money with your tax return in the Spring.

The opposite is also true. For those people who do not have anyone to claim as a dependent or do not want to owe taxes, they claim zero dependents and receive a smaller paycheck. In doing this, their tax bill in the spring is minimal, or they even receive a refund. In some cases, this refund can be thousands of dollars.

Why wouldn’t you want a big tax return?

Getting unexpected money is great. Even if it’s expected, not knowing the amount can be a great surprise. But the thing that gets overlooked when discussing tax refunds, is that this money was yours all along. By overpaying in your taxes – by not claiming enough dependents – you have been loaning money to the government, and they pay it back to you in the spring – with no interest included. It’s like putting extra money in an investment that pays 0% interest; with the only time you can draw it out being in the spring when you file your taxes.

For some, it can be forced savings to receive that money in a lump sum versus spread out over the year. They then put that money into their investments or savings account, and don’t have to worry about monthly savings. However, they miss out on investment growth over the entire year. For the most part, it’s not a good strategy to get a big tax refund at the end of the year. 

So how should I file, or revise, my W-4?

Every situation is unique. You’ll want to look at your last year’s tax return, and how much money you are making compared to last year. If you are making a similar amount, then this is an easy exercise. See how much you received in a refund / amount owed divide that by 12. Then approach HR and ask them to withhold, or give you, this amount every paycheck (if you get paid monthly).

For example, let’s say that Andrea earns $50,000 as a medical resident but owed $1,200 in tax payments when she filed her taxes. She should go to HR and ask them to withhold an extra $100/month from her paycheck, and then her liability at tax time would be minimal.

For another example, let’s say Chelsea got a raise at work and then be conservative until she goes through her first tax season with her new income. Let’s say she went from $37,500 to $55,000 in her promotion. As a single individual in Nevada, she doesn’t have to worry about state income taxes, but she did jump from the 15% to the 25% Federal tax bracket. She should be asking HR to withhold 25% of her increased pay, not 15% in order to adequately cover her increased liability. She may find that this will be too much come tax time, but she’ll receive a small refund. It will also allow her to fine-tune her withholding for the following year.

There’s nothing worse than getting a promotion and then paying taxes in the spring to remind you that you got paid more!

Confused? Here’s where to find help

It can be tricky, especially when your situation changes, to understand what numbers to use. The IRS understands this, and wants your situation to be accurate, so they have provided a calculator: https://apps.irs.gov/app/withholdingcalculator/. While it is quite detailed, it will give you an accurate estimate of whether you will be owe money, or receive a refund.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Dave Grant
Dave Grant |

Dave Grant is a writer at MagnifyMoney. You can email Dave at [email protected]

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Best Cash Back Credit Cards for Gas – September 2019

Gas in car_lg

Whether you’re hit by high gas prices in your area or you’re a heavy commuter, finding a credit card that offers a high rewards rate on gas purchases will definitely come in handy. There are cards that can earn you up to 5% cash back on eligible gas purchases, which can take the sting out of a stop to top off the tank.

Here are our top picks for gas credit cards.

Fort Knox Federal Credit Union Visa® Platinum Card

Fort Knox Federal Credit Union Visa® Platinum Card

APPLY NOW Secured

on Fort Knox Federal Credit Union’s secure website

Fort Knox Federal Credit Union Visa® Platinum Card

Regular Purchase APR
11.50% - 18.00% Variable
Annual fee
$0
Rewards Rate
Unlimited 5% cash back on gas and 1% cash back on all retail purchases.

The Fort Knox Federal Credit Union Visa® Platinum Card lets you earn unlimited 5% cash back on gas and 1% cash back on all retail purchases. This is a great rate that can earn you significant rewards. There is also no annual fee. Since Fort Knox is a credit union, you will have to join in order to obtain this card. Anyone can join for $15, of which $5 represents one share in the credit union; the remaining $10 covers your one-time membership fee. This card is great for big spenders in gas who don’t mind working with a credit union.

Sams Club® Mastercard®

Sams Club® Mastercard®

APPLY NOW Secured

on Sam's Club’s secure website

Sams Club® Mastercard®

Regular Purchase APR
17.15% or 25.15% Variable
Annual fee
$0
Rewards Rate
A maximum of $5,000 cash back per calendar year and offers 5% cash back on gas (on first $6,000 per year in purchases, then 1%), 3% on dining and travel, and 1% on other purchases.

The Sams Club® Mastercard® offers a maximum of $5,000 cash back per calendar year and offers 5% cash back on gas (on first $6,000 per year in purchases, then 1%), 3% on dining and travel, and 1% on other purchases. You need to be a Sam’s Club member to have this card, and annual memberships start at $45. Qualifying gas purchases include spending at gas stations, Sam’s Club fuel stations and Walmart fuel stations located in the U.S. and Puerto Rico; however, there are exclusions: Purchases at fuel stations at wholesale clubs (other than Sam’s Club), certain supercenters and supermarkets won’t earn 5%. Instead, they’ll earn 1%. Take note that the cash back redemption is limited to an annual check mailed out in February. You then have to go to a Sam’s Club to redeem your check.

Costco Anywhere Visa® Card by Citi

Costco Anywhere Visa® Card by Citi

The information related to Costco Anywhere Visa® Card by Citi has been collected by MagnifyMoney and has not been reviewed or provided by the issuer of this card prior to publication.

Costco Anywhere Visa® Card by Citi

Regular Purchase APR
17.24%* (Variable)
Annual fee
$0*
Rewards Rate
4% cash back on eligible gas for the first $7,000 per year and then 1% thereafter, 3% on restaurants & travel, 2% at Costco & Costco.com, 1% on all other purchases

The Costco Anywhere Visa® Card by Citi offers 4% cash back on eligible gas for the first $7,000 per year and then 1% thereafter, 3% on restaurants & travel, 2% at Costco & Costco.com, 1% on all other purchases. Most gas credit cards limit you to only U.S. gas purchases and often exclude wholesale gas purchases, but not this card. There is a $0* annual fee for this card, but you need to have a Costco membership (currently $60). The main catch with this card is it’s not simple to redeem rewards — cash back will be provided as an annual certificate in February billing statements, redeemable for cash or merchandise at U.S. Costco Warehouses.

Bank of America® Cash Rewards credit card - $200 Cash Rewards Offer

Bank of America® Cash Rewards credit card

APPLY NOW Secured

on Bank Of America’s secure website

Bank of America® Cash Rewards credit card

Regular Purchase APR
15.99% - 25.99% Variable APR
Intro Purchase APR
0% Introductory APR on purchases for 15 billing cycles
Intro BT APR
0% Intro APR for 15 billing cycles for any balance transfers made in the first 60 days
Rewards Rate
3% and 2% cash back on the first $2,500 in combined choice category/grocery store/wholesale club purchases each quarter, 1% on all other purchases
Balance Transfer Fee
Either $10 or 3% of the amount of each transaction, whichever is greater.
Credit required
good-credit
Excellent/Good

If you select gas as your choice category, you’ll earn a good cashback rate on gas purchases with the Bank of America® Cash Rewards credit card - $200 Cash Rewards Offer. The card offers 3% and 2% cash back on the first $2,500 in combined choice category/grocery store/wholesale club purchases each quarter, 1% on all other purchases. There is a $0 annual fee. Cardholders who will have the most benefit are Bank of America Preferred Rewards members. As a Preferred Rewards member, you can increase your bonus to 25-75%, making your gas cash back an effective 3.75%-5.25%. There’s a sign-up bonus that can kick-start your rewards: $200 online cash rewards bonus after you make at least $1,000 in purchases in the first 90 days of account opening.

The information related to Bank of America® Cash Rewards credit card - $200 Cash Rewards Offer has been collected by MagnifyMoney and has not been reviewed or provided by the issuer of this card prior to publication.

Which card is the right fit for me?

Since there are many credit cards for you to maximize your rewards from gas purchases, it can be confusing to choose a card. There are cards that offer high rates without caps. Others come with additional bonus categories to consider.

The table below breaks down which gas card may be a good fit for you when factoring annual gas spending, cashback rate and annual fee. (Sign-on bonuses are not reflected.) Keep in mind: This only factors in spending on gas purchases and doesn’t consider if you spend in other categories or at the other cashback rates.

Here are several key takeaways:

  • The Bank of America® Cash Rewards credit card - $200 Cash Rewards Offer will earn you the most cash back ONLY if you’re a Preferred Rewards member with at least $100,000 in a Bank of America checking/savings account. Otherwise, the Fort Knox Federal Credit Union Visa® Platinum Card will earn you the most cash back.
  • Although the Costco Anywhere Visa® Card by Citi doesn’t earn you the most cash back, it may be a better fit for Costco shoppers due to the other high-cashback categories.
  • You won’t earn the best cashback rate with the Bank of America® Cash Rewards credit card - $200 Cash Rewards Offer unless you’re a Bank of America Preferred Rewards client with $100,000 in a checking or savings account — allowing you to benefit from a 75% redemption bonus.
  • The Sams Club® Mastercard® is a good option for current members who fuel up at Sam’s Club and spend $5,000 or less a year on gas.
  

Card

Fort Knox Credit Union Visa® Platinum

Costco Anywhere Visa® Card by Citi

Bank of America® Cash Rewards Credit Card: without a BofA checking / savings

Bank of America® Cash Rewards Credit Card: with $100,000 in a BofA checking / savings

Sam's Club® Mastercard®

Spending

$1,000

$50

$40

$30

$53

$50

$2,000

$100

$80

$60

$105

$100

$3,000

$150

$120

$90

$158

$150

$4,000

$200

$160

$120

$210

$200

$5,000

$250

$200

$150

$263

$250

$6,000

$300

$240

$180

$315

$300

$7,000

$350

$280

$210

$368

$310

$8,000

$400

$290

$240

$420

$320

$9,000

$450

$300

$270

$473

$330

$10,000

$500

$310

$300

$525

$340

*We did not include the Costco and Sam’s Club membership fees in our calculations.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Alexandria White
Alexandria White |

Alexandria White is a writer at MagnifyMoney. You can email Alexandria at [email protected]

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News

How to File Taxes as an Immigrant

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Two recurring themes have dominated the news cycle over the past few years: immigration and taxes. While these may seem like entirely separate issues at first glance, immigrants do pay federal income taxes — and face a variety of unique challenges in the process, including dealing with language barriers and learning to file for the first time.

To help make filing your taxes as an immigrant a little easier, here’s an overview of who needs to file, how to file for the first time and where you can turn for help.

Who files taxes?

Citizens aren’t the only ones who pay taxes in the U.S. Immigrants who are authorized to work in this country are required to pay the same federal and state income taxes that citizens do, and undocumented immigrants pay billions of dollars in taxes each year — often for public benefit programs that they are unable to use.

Filing requirements depend on whether you are considered a nonresident alien or a resident alien.

Resident aliens

A resident alien must meet one of two tests:

  • Green card test. The U.S. Citizenship and Immigration Services issued you an alien registration card, also known as a “green card,” which allows you to permanently live in the U.S. as an immigrant.
  • Substantial presence test. You must be physically present in the U.S. for at least:
    • 31 days during the current year, and
    • 183 days during the three-year period that includes the current year and the two years immediately before that. (You can read more about how days of presence are determined here.)

Resident aliens follow the same filing requirements as U.S. citizens.

Nonresident aliens

If you are not a U.S. citizen and don’t meet either of the tests to be considered a resident alien, you are considered a nonresident alien.

As a nonresident alien, you must file a tax return if you own a business in the U.S. or have U.S. income and did not have enough tax withheld by your employer. You may also want to file an income tax return to receive a refund of tax withheld.

What’s a W-4?

If you work in the U.S., your employer should ask you to complete Form W-4, which is used to determine the correct amount of tax to withhold from your pay.

Form W-4 includes worksheets to help you determine how many “allowances” you should claim. Each allowance reduces the amount held from your paycheck. You get one allowance for yourself, one for your spouse, and one for each dependent you claim on your tax return.

You can complete a new Form W-4 at any time, and it’s a good idea to submit a new one to your employer anytime your tax situation changes, such as if you get married or divorced or have a new baby. Adjusting your withholding can help prevent having too much or too little tax withheld.

Rather than relying on the worksheets included with Form W-4, you may want to use the IRS’s Withholding Calculator.

How to pay U.S. taxes

In some countries, the government withholds tax from your paycheck, and that’s the end of your tax filing requirements. In the U.S., it’s more complicated. Here’s an overview of what you’ll need to file a tax return.

SSN or ITIN

To pay taxes in the U.S., you will either need a Social Security number (SSN) or an individual taxpayer identification number (ITIN).

Noncitizens authorized to work in the U.S. by the Department of Homeland Security can apply for a Social Security number in their home country before coming to the U.S. or by visiting a Social Security office in person. You will need to complete Form SS-5, Application for a Social Security Card, and provide documentation to prove your identity, work-authorized immigration status and age. You can learn more about the acceptable documentation here.

If you are not eligible for an SSN, you can apply for an ITIN by filling out Form W-7, Application for IRS Individual Taxpayer Identification Number and submitting it to the IRS along with documentation proving your identity and foreign status. The Instructions for Form W-7 include a list of acceptable documents and instructions for submitting your application.

Which tax forms to file

The tax forms you’ll use to file your tax return depend on whether you are a resident alien or a nonresident alien.

Resident aliens use the same tax form as citizens: Form 1040, U.S. Individual Income Tax Return. Generally, Form 1040 is due on April 15 of the following year. However, if you are living and working outside of the U.S. on April 15, you are given an automatic extension to June 15. You can request a longer extension, until Oct. 15, by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.

Nonresident aliens file using Form 1040-NR, U.S. Nonresident Alien Income Tax Return. Form 1040-NR is also due on April 15 of the following year, but taxpayers who are not living and working in the U.S. on that date have until June 15 to file. You can request an extension to October 15 by submitting Form 4868 by the due date of your return.

Reporting income earned outside the US

Many resident aliens and nonresident aliens continue to receive income from outside of the U.S. even after they begin working in the country. Resident aliens are required to report income from all sources within and outside of the U.S. on their tax returns, whether they are living in the U.S. or abroad.

However, you may qualify to exclude a portion of your foreign earnings from your taxable income — the amount you can exclude changes each year. You can determine your eligibility and the exclusion amount using Form 2555, Foreign Earned Income. You can also use the IRS’s Interactive Tax Assistant Tool to help determine whether the income you earned in a foreign country can be excluded.

What to do if you’re undocumented?

According to the Pew Research Center, there were roughly 10.5 million undocumented immigrants in the U.S in 2017, and 7.6 million of them are a part of the U.S. workforce.

Whether undocumented immigrants work legally under Deferred Action for Childhood Arrivals (DACA) protections or work illegally with falsified or nonexistent documentation, they are required to pay taxes on any income earned in the U.S.

Many undocumented immigrants face barriers to complying with U.S. tax laws due to language barriers, difficulty understanding complex tax laws or fears that the IRS will pass their information along to immigration enforcement.

Later, this article will cover resources where immigrants can find help with tax filing. As for immigration enforcement fears, you generally do not have to fear that the IRS will share your application for an ITIN or tax information with immigration enforcement officials. The IRS is not allowed to release taxpayer information to other government agencies, except for providing information to the Treasury Department for tax compliance investigations or under a court order related to a non-tax criminal investigation.

Benefits of paying taxes

Filing a tax return and paying taxes to the U.S. does not entitle nonresident aliens or undocumented workers to claim Social Security benefits, but there are other benefits to filing tax returns. According to the National Immigration Law Center, paying taxes:

  • Demonstrates compliance with federal tax laws
  • Gives immigrants who want to legalize their immigration status and become a citizen an opportunity to prove they have “good moral character”
  • Document work history and physical presence in the U.S.
  • Claim certain tax benefits, such as the Child Tax Credit
  • Claim insurance premium tax credits for children who are U.S. citizens

Where to find help

The IRS’s Volunteer Income Tax Assistance (VITA) program helps taxpayers who cannot afford traditional tax preparation service, need translation assistance or need help applying for an ITIN. The IRS trains and certifies volunteers to provide free basic tax return assistance to individuals.

You can locate a VITA site by visiting http://irs.treasury.gov/freetaxprep/ and entering your ZIP code. Before visiting a VITA site, you may want to review Publication 3676-B (available in English and Spanish) to verify the services provided by VITA and check out the IRS’s What to Bring page to ensure you have all of the required documents and information volunteers will need to help prepare your return and apply for an ITIN, if necessary.

If you prefer to handle tax filing on your own, check out our recommendations for tax filing software.

The bottom line

Working through the forms required to apply for an ITIN and prepare a tax return can be daunting, but seeking help and overcoming the barriers to complying with U.S. tax law is important. If you plan to seek citizenship down the road or someday appear in front of an immigration judge, the fact that you’ve dutifully filed income tax returns while you lived and worked in the country can help make a stronger case for you to remain in the country.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Janet Berry-Johnson
Janet Berry-Johnson |

Janet Berry-Johnson is a writer at MagnifyMoney. You can email Janet here