When you quit your job, the last thing you are probably thinking about is your tax bill. But, as they say, there are two things certain in life: death and taxes. And given the changes that quitting your job can bring, it’s best to be prepared when tax time comes.
So, how do you calculate estimated taxes when you quit your job? Follow these simple steps:
How To Calculate Estimated Taxes When You Quit Your Job
- Get a copy of your last pay stub.
If while working at your company you logged into a software to get your paystub, you might not have access anymore once you’ve left the company. You should get a copy of your final paystub by mail or email (or both) within 2 weeks of your last payday. If you don’t call your HR department. (It’s also wise to download a copy of your second to last paystub before you leave).
- Estimate if you think you will get a new job this year and how much you might earn
Depending on your situation, you may be taking some time off, taking a sabbatical, traveling the world OR you may immediately be looking for another job. If you plan to work within the same calendar year as you quit your job, try to guess what you might earn during the remainder of the year. This isn’t a required step, as you can change your withholdings later, but if you are already anticipating a tax bill; it’s nice to include in the calculator.
- Use the withholding calculator to calculate your taxes
The IRS has dramatically improved their tax calculator in the past few years. Unfortunately, it’s not as simple as it used to be but it’s still easy enough to follow. So just visit the calculator here. Complete all the steps (or as many blanks as you are able) and see what they say you owe. Do the same on your state tax website (if available).
- Pay your estimated taxes each quarter (if needed)
Check what you have paid year to date for federal and state taxes (as shown on your last paystub) to see if they equal or are more than what the IRS withholding calculator told you you will owe. If your withholdings on your pay stub are less than what the IRS requires you to pay you should likely pay estimated taxes in order to avoid penalties. You can and should also pay your state taxes.
- If you get a new job, check your withholdings
If you get a new job following quitting your job, you should be sure to check your tax withholdings with a withholdings calculator. This is particularly true if you received any type of severance payment or equity during the year. Or, on the flip side, if you took some time off, you won’t owe as much, so you can reduce your tax withholdings on each paycheck. (Do this by contacting HR).
Last year, I didn’t pay enough in taxes during the year and was stuck with a large bill in April. To ensure this doesn’t happen again, I’ve been paying my estimated taxes following quitting my job this year.
To Sum Up
So how do you calculate estimated taxes when you quit your job? Get your paystub, estimate if you’ll make more money during the year, use the IRS withholdings calculator, and pay your taxes.