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One of the greatest problems performers have is filling out their W-4s properly. W-4s are the forms that are presented to us every time we get a new job. The information we place there is used by the company to determine what amounts of taxes should be subtracted from our checks for the Federal and State withholding. To be honest there is no simple answer on how to fill out a W-4. The amount of withholding changes depending on the size of the check that is written. An elementary explanation is that the check represents an example of how much we would be earning if we made that amount every pay period. Therefore a check written for a small amount may have very little withheld for taxes while a check for a much greater amount has a greater percentage withheld. Many performers believe that they should place as many exemptions (NEVER more than nine) as they legally can on the W-4 in order to keep as much of the income for themselves and don't worry about the results until they fill out their tax return. The obvious problem is most performers never have the money when they ultimately learn they had too little of their income withheld and are forced to write out a check to the IRS and/or the state(s) to cover what they owe. This isn't helped when the production companies disregard the instructions of the performer and/or "assist" the actor in withholding too little. This seems to be particularly true with certain commercial payroll companies. If an actor has a particularly good year booking commercials, they can often end up owing thousands of dollars to the taxing agencies; money that they have probably already spent. One actress came in to us one year having made over $100,000 from commercials, thrilled that she was finally able to pay off all of her credit cards. Unfortunately, when she learned that too little had been withheld from her checks and she was hit with the Alternative Minimum Tax or AMT (a supplementary tax that ultimately limits the amount of total deductions a tax payer is allowed to write-off), she owed thousands of dollars. As she sat in our office in tears she realized that the only place she would be able to get the money to pay off her tax debt was from her credit cards and the vicious cycle started again. How much of a problem is this? Every year we see it over and over again. The record for our office was $117,000 dollars in commercial income from ONE company and only $1,500 withheld. For a single person (excluding deductions/write-offs) that amount should normally have been $26,000 to the IRS and additional California taxes would have been another $8,500 alone. In another case we had an actor receive a W-2 for slightly over $80,000 with NOTHING withheld for Federal and state taxes. Commercial actors have a real problem because a good year with a lot of visibility usually means little work the following year when they need the money to pay last year's tax bill. And quite frankly, it almost doesn't matter how little a performer owes, they usually have very little to spare come tax time unless they have been through this before and have prepared themselves. As we said above, there is no specific information that applies to all scenarios. Different actors have differing amounts of deductions and depending on the total income, the taxable income may be in higher brackets (and thus have a higher amount due for each thousand dollars as the taxable income rises.) Adding to the problem is that actors work for many different companies throughout the year and even though each company may withhold enough money to pay the taxes for the amount the actor made for each job performed, adding the income together places their taxable income into a much higher bracket than the production companies withheld for. A rule of thumb we offer is simple: Never have a check arrive with nothing withheld. When that happens you should know immediately you have a possible problem (unless your total income for the year is less than $7,00 to $8,000 or about the amount of your standard deduction and personal exemption.) If your TOTAL income (from ALL sources) is about $35,000 or less (as a single person) and you have reasonable write-offs for a performer, you should make sure you have at least 10% withheld in Federal taxes. If you do, usually the amount needed for the state taxes follows suit. (Don't hold us to this though, each case is different person to person, location to location.) When you see your income rising beyond $35,000 (REMEMBER-- this is a VERY general suggestion) you will want to see even more withheld, up to 20% or more. We realize this is difficult to accept but owing anything the following year for income you have already spent is worse than having to live on less money during the year you are making the money. The alternative is having to make payments, whether on a credit card or to the IRS to pay last year's taxes when you are also trying to make sure that you are having enough withheld THIS year AND trying to live on the balance. And if the income you are receiving is for self employed income (cash or 1099 work such as modeling, personal appearances, etc or some other form of occupation), then it is YOUR responsibility to remember that each dollar you earn is subject to 15% self employment tax PLUS the normal Federal and state taxes of 10% to 15% in the lowest brackets (it can be over 30% in the higher brackets.) That means you had better be prepared to pay at least 30 cents of taxes on every dollar you earn or more when "self-employed!" Below is a link to the IRS website where you can go to to determine what you will owe throughout the year depending on your income. However this website is established to show you the deductions for W-2 income only and doesn't have allowances for write-offs. Assuming that you are spending a similar amount of money in write-offs this year as you did last year (WARNING--This is not always the case) you could subtract that total from your income to offer a slightly closer idea of the amount you should be having, or have had withheld on the income you have earned. But once again, this website is NOT set up to handle deductions and will not allow for the posibility of hitting the Alternative Minimum Tax (AMT) which places a limit on the deductions you are allowed to write-off. Once again we have to place a warning here:
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