Life-changing events can also change your tax liability. While you may have other things on your mind after marriage or the birth of a child, a quick check of your W-4 can help you avoid an unwelcome surprise when you calculate your taxes.
Your W-4 form tells your employer how much money to withhold from your paycheck each pay period. Ideally, that amount will be about the same as what you actually owe in taxes. Pay too little, and you’ll owe the government money at tax time. Pay too much, and you’ll get a refund check at tax time. That option sounds good until you consider that you’ve loaned your money interest-free to the IRS. If you fill out your W-4 properly, your withholding should remain close to what you owe in taxes unless something happens during the year that changes your tax situation. Marriages, divorces, births, deaths and changes of employment status all warrant another look at your W-4, because they typically change the amount of tax you owe.
How to Make the Calculation
Your employer determines how much to withhold based on your marital status and how many allowances you claim on your W-4. The more allowances you claim, the less money your employer withholds from your paycheck. You can also provide a specific additional amount for your employer to withhold from each paycheck to get the yearly amount closer to your actual tax liability.
Your employer determines how much to withhold based on your marital status and how many allowances you claim on your W-4. The more allowances you claim, the less money your employer withholds from your paycheck. You can also provide a specific additional amount for your employer to withhold from each paycheck to get the yearly amount closer to your actual tax liability.
Revisiting your W-4 form after a major life event helps ensure you’ve calculated your withholding properly. The IRS offers a worksheet with the W-4 form, that walks you through the steps to fill the form ·out accurately. The IRS also has a free withholding calculator on its website at irs.gov/individuals/irs-withholding-calculator.
PRO TIP: “A tax refund is nice, but may be a sign you’re withholding too much. Consider adjusting your W-4 to more closely match your tax bill.”
Here are three common scenarios that might require changes:
- Marriage status Married couples who file jointly typically have lower tax rates and more generous deductions than single taxpayers do. If you get married or divorced, you’ll want to review your allowances to make sure they account for any tax consequences of changing your filing status from single to married or vice versa.
- Children A new child means a new dependent on your tax return, which means you’ll probably want to add another allowance on your W-4. You should also consider potential benefits from other related· tax credits when recalculating your withholding.
- Change in employment status You’ll fill out a W-4 for each employer you have. When doing so, you’ll need to adjust your withholding to account for anything that increases or reduces your total annual in-come, including a second job, income from self-employment
Get your taxes done by a professional
The tax code continues to be complicated, regardless of the many changes done to simplify it.
Most taxpayers are opting to apply the standard deduction rather than itemized deduction method on their tax return, mostly because it is simpler, however it isn’t straight forward.
That’s why every year more taxpayers choose to work with a professional, there are many situations where a single missed deduction could cost a taxpayer much more than a pro’s fee.
If you want to work with a trustworthy tax professional in your area, Freedom Services can help you. Our tax experts have a thorough understanding of the tax code, and how it can affect your tax return. Talk to and let us help you get the maximum return available to you.
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