Did You Receive a Large Tax Refund or Did You Owe Money?
You Might Need to Adjust Your W-4
If you got money back, keep in mind that you are simply receiving your own money that was over-withheld by your employer in the first place. A better solution would be to bank the money and have access to it for the entire year instead of giving the US Government an interest-free loan.
To adjust your withholding information you providing your employer on Form W-4, you will need to provide your employer with an updated W-4. Although the W-4 appears to be an easy form to fill out, this is where many taxpayers go wrong because they have other income, itemize their deductions or qualify for various tax credits.
You can solve this problem by using the IRS’s online W-4 calculator that helps taxpayers determine the correct amount of allowances to claim on their W-4. It takes into account a variety of issues, including itemized deductions, other income, tax credits, and tax already withheld.
Here’s what you will need before using the IRS calculator:
- Your (and your spouse’s if you file jointly) most recent pay stub
- A copy of your most recent income tax return
You will be required to estimate some values, so remember the results are only going to be as accurate as the input you provide.
Once you have determined the filing status and allowances to claim using the IRS calculator, download a copy of Form W-4, Employee’s Withholding Allowance Certificate, fill it in and give it to your employer.
Tip: Once your employer has implemented the new W-4 allowance, double-check the withholding to make sure it is approximately what you had intended. It is not uncommon for errors to occur in an employer’s payroll department that could lead to unpleasant surprises at tax time.
If you are self-employed, you generally pay estimated taxes instead of having payroll withholding. You may be self-employed and also have salaried employment, or your spouse may have payroll income or be self-employed. There are a multitude of possible combinations. If so, the IRS withholding calculator is not suitable for your needs, and you will probably need professional assistance in determining a combination of estimated taxes and payroll withholding.
Caution: If you are uncomfortable using the IRS’s online calculator, don’t understand some of the terminology, or have multiple jobs or a working spouse, please call this office for assistance in preparing your W-4s and determining your estimated tax payments.