Are you paying too little in taxes? Too much? Who cares as long as you get a gillion-dollar tax refund, right?

Boy, do you have a lot to learn. But don’t worry, you’re in the right place!

In short, every taxpayer has a tax bracket. Of course, as our income goes up, so does our tax bracket. Based on your income at the last day of the calendar year that will put you in your tax bracket at the end of the year.

So, by the end of the year, if you paid too little in taxes, you will owe the IRS money during the following year’s tax preparation. If you paid too much, you will naturally get that money back. It is called a tax refund.

Because most people pay too much, that excess goes into your tax refund to make it even bigger. The theory goes: the more that is in the IRS kitty, the more you can get back. And, if you wish, you can even put even more in the kitty. Again, the more you put–over your required tax bracket amount–the more you will get back in your tax refund.

So, how do you pay the government the right amount at the right time? Yes, it is a complicated formula, but to understand the basics at this moment is that all employees pay the IRS through their paycheck. Does your employer take care of it for you? No. You do! By filling out a W-4 form on your job.

How do I calculate the amount of federal tax withheld from my W-2?

Your last paycheck of the year should tell you the total federal tax that was withheld from your paychecks throughout the year.

Remember, the amount withheld from your income is determined by the W-4 you gave your employer. So your federal income tax withholdings will change depending on the information on your W-4. For example, if you claim to be exempt on your W-4, your employer will not withhold federal income tax from your income.If you claim more allowances, your employer will send more to the IRS.

Why is my Tax Refund so small? Is it because I owe taxes?

If you owe taxes or your refund is smaller than expected, the first thing you should do is review your tax return.

If everything looks correct on your tax return, then here are some potential reasons why you owe taxes:

Did you have too little withheld from your wages? If so, fill out a Form W-4 with your employer to have more taxes taken out of your paycheck during the year so you don’t owe taxes, or get a smaller tax refund,  when you file your return.

Do you have gig income such as working a side job at Uber where you are getting self-employment income rather than wages?

Unlike W-2 wages, Form 1099-MISC doesn’t have any taxes withheld from it. In addition, self-employment income has self-employment taxes on it that are calculated on the tax return and added to the regular taxes on the same income.

Did you have a significant amount of income other than wages that didn’t have any taxes withheld from it?

 For example, if you have rental income, business income, capital gains from stock sales, unemployment income, or canceled debt income. If you are expecting to have a significant amount of income other than wages next year, you can pay quarterly estimated taxes (Form 1040-ES) to avoid owing tax on next year’s return.

Did you have a life change that affected your taxes this year such as not being able to claim a child as a dependent, not being able to claim certain credits or deduction, or getting married or divorced?

If so, you should take a new form W-4 to your employer to have more taxes withheld from your paycheck.

If you are unable to pay the taxes you owe, you can set up a monthly payment plan with the IRS by filing an Installment Agreement with the IRS. Just ask for The Installment Agreement Request form.

So to try to simplify the complicated rule, let’s look at an example. Let’s say you made $50,000 of total income at the end of the calendar year, and you paid to the IRS, through your employer and other sources, your tax bracket (say 20 percent), then you should have paid $10,000, before tax deductions and credits, to the IRS kitty. If you got a Tax Refund the following year of $1,000, then that means you overpaid your taxes. If you increase your allowances to , let’s say, another $500, then all things remaining equal, then the following Tax Refund year, you will receive $1,500.

If you receive a Tax Refund of only $250, then you paid just enough or just a bit too extra. If, let’s say you owed $1,000, then you underpaid your taxes by that amount and have to increase your w-4 allowances to put an extra $1,000 back in the IRS kitty, so at best, the following year, you will break even. If you decide to put in $1,500, then the following year, you will receive a Tax Refund of $500.

So, what’s your correct tax bracket? Get ready! If you do not owe! If you do not get a refund! Then you are in your absolutely correct tax bracket.

Professor Anthony Rivieccio, MBA PFA, is the founder and CEO of The Financial Advisors Group, celebrating its 24th year as a fee-only financial planning firm specializing in solving one’s financial problems. Mr. Rivieccio, a recognized financial expert since 1986, has been featured by many national and local media including: Kiplinger’s Personal Finance, The New York Post, News 12 The Bronx, Bloomberg News Radio, BronxNet Television, the Norwood News, The West Side Manhattan Gazette, Labor Press Magazine, Financial Planning Magazine, WINS 1010 Radio, The Co-Op City News, The Bronx News, thisisthebronX.info and The Bronx Chronicle. Mr.  Rivieccio also pens a financial article called “Money Talk”. Anthony is also currently an Adjunct Professor of Business, Finance & Accounting for both, City University of New York & Monroe College, a Private University. You can reach Anthony at 347.575.5045.