This post is part of a three post series which walks a recent graduate through filling out their W-4 and filing their taxes. After these three posts, recent grads should be squared away with Uncle Sam come April.
Post 1: How To Fill Out A W-4 For A Recent Graduate
Post 2: How To Figure Out Taxable Income for a Recent Graduate
Post 3: How to File Your Taxes for a Recent Graduate
Getting the Job
Since April is right around the corner I decided to write a post to help any recent graduates who are about to sit down and do their taxes. I remember when I first sat down the January after graduation and went to file my taxes… it was a good bit different than when I was making substantially less while a full-time student. This is meant to be a short-and-sweet post, right down to the point.
Taxes do not need to be difficult and hopefully this gives you some guidance. However, as I can not possibly give advice in regards to your exact circumstance, you should make sure to check resources at the IRS website to ensure you are filling this out correctly. You can also contact your HR contact or a tax professional.
Before we discuss how to file taxes, though, we should start at the beginning. This is the part a lot of people rush through in the new employee orientation: Filling out the new-hire packet and the accompanying w-4 form. If it still doesn’t sound familiar its usually thrown in with all that paperwork on the sexual harassment policy and the company’s market standing. If this still doesn’t ring a bell, this step happens somewhere between you getting an offer letter and your first day at work :). Congrats on the job, btw.
Filling out the W-4
I would go ahead and print a Form W-4 [PDF] to follow along with the post. The first section you need to fill out, pictured below, is the “Personal Exemptions Worksheet.” For most new graduates, you will put a 1 for A and a 1 for B, meaning H will be 2. BUT you should check with your parents and make sure they are not claiming you as a dependent before you put 1 for A. This is doubtful, but I would make sure.
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The next section is the “Employee’s Withholding Allowance Certificate.” Here you actually are putting down how many exemptions you want to file. As you see, box 5 asks for the number that you placed in H on your worksheet. Generally, the words of advice for a recent graduate are that if you claim 2 allowances you will probably owe the government money at tax time. If you claim 0 allowances you will be giving the government an interest free loan as you will be overpaying by a significant amount. Please note that 0 is not the same as exempt! Exempt means they will not take any taxes and 0 means they will take out the maximum. So, if you want to be safe put down 1 allowance. If you would like to use an IRS calculator to assist you, go here.
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Take Advantage of the Part-Year Method
One other thing that I am glad I researched on my own when I started my new job was the Part-year method. My HR representative did not tell me about this even though I was starting my job in June. Essentially, let’s assume you have accepted a job that pays $50,000/year (congrats again!) but your job starts in June. You are only working half a year at this rate, in essence earning $25,000/year, but the government is taxing you at the higher bracket for people who earn $50,000/year. Again, you are giving them an interest free loan! So what can we do? Apply for the part-year method. Here is a document from the IRS that outlines the Part-Year Method [PDF] on page 8.
To make it simple, they have 2 stipulations to use that method
- You must use a calendar year for your taxes, not a fiscal year
- You cannot be employed for more than 245 days in the year, which includes weekends, sick days, vacations, and short term layoffs
Go to the document to get more information. The goal is to limit the taxes they take to what you actually owe, you don’t want to overshoot OR undershoot!
I hope this helps you fill out your w-4 for any recent or upcoming graduates. Proper tax planning allows for more accurate and effective budgeting practices and investment opportunities.
Next week I will take this information and go through the start of the tax filing procedure with you!
Leave some comment love if you have any questions or comments (especially if you remember being a recent grad and have some useful information to pile on in regards to filling out the w-4)!
My Life ROI recommends filing your taxes with TurboTax Federal Free Edition for ease of use, accuracy, speed, and… it’s free!