While few Americans enjoy paying income taxes, you have good reasons to actually increase how much of your weekly paycheck is withheld for income taxes. When should you do this and how? Here are a few answers.
When Should You Increase Withholding?
The goal of paycheck withholding of taxes is to ensure that your annual tax bill is completely or largely paid before you file your annual tax forms in the spring. Therefore, if you aren't meeting this goal and end up with more income taxes due after filing Form 1040, you should consider having more withheld throughout the year. It can be much less disruptive to take home slightly less regularly rather than have to face an insurmountable tax bill later.
Adjusting withholding is especially important if you have big changes in your tax situation in a certain year. This could include unusual income sources like the sale of an investment, a profitable side gig, or unemployment benefits. It could also happen if you lose major deductions like the ability to claim dependents. Increasing your withholding is often the easiest way to boost payments to cover additional taxable income.
Finally, some taxpayers use their withholding as a form of forced savings throughout the year. If you find it difficult to save money on a regular basis, you might consider letting the IRS do it for you. If you deliberately choose to have more withheld than you need to pay your taxes, you will get a refund after filing Form 1040 in the spring. However, you would first need to ensure that your refund will not be seized for things like unpaid child support, tuition, or unemployment reimbursements.
How Can You Adjust Withholding?
If you find yourself in any of these situations, the good news is that adjusting your withholding is completely voluntary and fairly easy. Ask your employer for a blank Form W-4, Employee's Withholding Certificate. You have the right to file a new form with your employer at any time.
Although the most current Forms W-4 are designed to withhold only what is necessary, you can tweak your answers to result in more withholding. For instance, you may check the box indicating you're a single filer rather than a married filer and see your withholding increased. Similarly, you may reduce the number of dependents you claim on the form. Keep in mind that this information does not have to match Form 1040.
Where Should You Start?
Figuring out how much to withhold should be done with the help of an experienced tax service. Failure to adjust it correctly could result in making matters worse when you file your annual taxes. So, start today by meeting with a tax service in your state and learning more about your specific tax situation.
