Remember filling out a W-4 form when you were first hired? It’s the form that determines how much money your employer withholds from your paycheck to pay federal and state taxes—based upon the number of “allowances” that you claimed. But have you checked to see if it’s still applicable? Consider adjusting your W-4 form if the following applies:
1. You owed the IRS money last year – You may want to have more money withheld from your paycheck. In fact, if you owe too much, the IRS can assess you and add a penalty for not depositing enough money into your account.
2. You’ve experienced a “life change” like
- Birth or adoption of a child
- Purchase of home
- Refinance of mortgage
3. You expect to earn money from your home-based business or other source that does not withhold income taxes from the check.
4. Change in itemized deductions
- Medical expenses
- Gifts to charity
- Dependent care expenses
- Education credits
- Child tax credit
To INCREASE the amount of taxes from your paycheck, you will need to DECREASE the number of dependents. You can also specify a larger dollar amount—like $50 per pay period. Likewise, to have LESS money deducted, INCREASE the number of dependents or specify a smaller dollar amount per pay period. I recommend that you check your withholding every year—right after you’ve filed your income tax return. The IRS offers a withholding calculator at www.IRS.gov. You’ll need your most recent tax return and current paycheck stub. Or, ask your tax preparer to help you adjust your withholding so you don’t owe too much—or get a large refund from the IRS—at the end of the year.