Withholding Per Paycheck for Federal Taxes
When you fill out Form W-4, you are making a hard decision about your tax payments. The IRS gives you the power to decide how much tax money you want withheld per year. However, if you withhold too much or too little, you are in for an unpleasant surprise. It is harder than it seems to make this decision. By taking stock of your current financial situation, you can figure out how to correctly assess your tax withholding.
-
Warning
-
If you claim too many withholding allowances on your W-4, you will end up owing the IRS big money. You must figure out whether you will need that extra tax money throughout the year, or if you are comfortable with giving it to the IRS paycheck by paycheck.
How to Know You're Withholding Too Much
-
If you're getting a large refund check from the IRS, you withheld too much on your W-4. Though it may be nice to get a large check, you really just loaned interest-free money to the federal government.
How to Know You're Withholding Too Little
-
If the IRS sends you a large, outstanding tax bill, you withheld too little on your W-4.
When You Should Claim Withholding Allowances
-
If you just got married or had a new baby, you should claim those allowances on your W-4. You should also claim allowances if your financial situation has become less secure, if you have a retirement plan or if you have purchased new real estate.
When You Should Not Claim Withholding Allowances
-
If you get a divorce, you are required by law to submit a new W-4 to your employer (changing your marital status from "married" to "single"). Also, as your children move away from home, you should stop claiming them as dependents.
-
