Was your tax refund what you expected it to be? Or did you end up owing more than you anticipated?
The number of exemptions you claim on your W-4 impacts your end-of-year tax filing. When you have too much withheld, you end up giving Uncle Sam an interest-free loan. Yes, you get a refund at the end of the year – but the IRS had access to your money in the meantime, versus you keeping it.
Taking too little from your check each pay period could result in you owing a large amount at the end of the year. The goal should be to come out about even at year-end with either a small amount owed or a small refund.
If your taxes this year resulted in a big swing in either direction, it might be time to adjust your W-4. There are also five common life events where you should consider revising your W-4 withholdings.
- You get a second job: If you earn extra income from a side job or personal business, in addition to your main job, you need to adjust your withholdings to account for the increased income.
- Your spouse gets a job: Any change in household income could impact your tax bracket. You can have one spouse claim all the allowances or split the allowances between you. Just make sure you aren’t both taking all of them.
- You are unemployed part of the year: If you get laid off from your job and stay unemployed the rest of the year, you likely had too much tax withheld. If you go back to work in the same year, you’ll need to adjust for the downtime.
- You get married or divorced: Married persons filing jointly will qualify for a lower rate and other deductions. Similarly, a divorce will impact your deductions and filing status.
- You have a baby or adopt one: There are additional allowances for dependents. You may qualify for the Child Tax Credit, Child Care Tax Credit and others. If you adopt a child, there’s another tax credit.
It’s smart to use your money to benefit you rather than loan it to Uncle Sam. Tax season is a good time to review your withholdings and make adjustments that will benefit your cash flow. If you need to change your W-4 contact the human resource or payroll department at your company and request a new W-4 form.