When the new year rolls around many people want to know how to adjust their federal tax withholding status. If you don’t tell your employer that things in your life have changed, they will continue to withhold the same amount they always have. This article will explain how to adjust your federal tax withholding using the 2011 W-4 Form. Access the W-4 Form here. But first, let’s look at some reasons you might want to change your tax withholding status.
Reasons to Change Your Tax Withholding Status
- Change in Marital Status – If you get married or get a divorce, you should complete a W-4 as soon as possible to reflect the changes.
- Change in the Number of Dependents – If you have a child or take on a dependent, you should change your W-4. Be sure to take note of the special sections for child tax credit and child care expenses.
- Change in Spouse’s Employment Status - If your spouse’s income situation recently changed, then you should revisit the W-4. Be careful when you go from a one-income household to a two-income house hold: you will likely need to make fewer allowances since you will have more combined income. Look for the worksheet on page 2 of the W-4
- Purchased Your First Home – If you purchased a home recently, it likely means that you will have mortgage interest and property taxes. Both of those items usually allow filers to itemize their deductions. If you itemize deductions you can designate the specifics on the W-4 and get a more accurate withholding rate.
- Too Much Refund Last Year – If last year’s refund was too much for your liking, and you would like more of that money in your paycheck every week, then you should adjust your W-4.
- Too Much Payment Last Year - Likewise, if you paid too much at tax time last year, then you may want to adjust your W-4 and take more money our of your paycheck throughout the year.
What is a W-4?
When you first see the Form W-4, it can be confusing. The IRS uses slightly different terminology that most filers aren’t used to seeing. It’s no wonder so many people need the W-4 Form explained. The Form W-4 is the tax form that your employer uses to help them evaluate how much to withhold from your paycheck. It contains basic personal information, along with a series of questions to help you determine the number of allowances you are making. Allowances aren’t exactly the same as deductions or exemptions. Allowances simply represent any reason to take less money from your paycheck for tax purposes. The more allowances you make, the less your employer will take from your paycheck for taxes.
How to Boost Your Bigger Tax Refund
I encourage you to complete the W-4 as accurately as possible, making allowances for yourself, your spouse, and your dependents, among other things. However, some people choose to decrease the amount of allowance they claim on the W-4 (regardless of their actual situation) in order to increase the amount of money that is withheld from their paycheck. Such a move would increase the amount of tax refund you get at the end of the year. There is also a line on the form (Line 6) to request additional withholdings. Complete that if you want even more taken from your paycheck (a good idea for those with miscellaneous income). This is not a good way to account for side business income though. If you have that you should make estimated payments.
How to Withhold a More Accurate Amount
To get the most accurate tax withholding, resulting in $0 owed or due at tax time, you will simply have to answer the allowance questions accurately. There is an excellent withholding calculator available on the IRS website which will help you precisely determine your allowances and help you complete the W-4 to meet your needs.
Keep in mind that if you itemize your tax deductions, you will need to make some accurate estimates about those using the worksheet on page two of the W-4 Form. Likewise, when your spouse goes from no income to earning income, you will need to visit the worksheet on page two of the W-4 to help you make allowances more accurate.
Finally, remember that when your life situation changes throughout the year (you buy a house, have a child, get married, etc.), you will need to complete a W-4 to reflect your new situation. This will keep your withholding in line with your true tax status. You don’t have to wait till the new year rolls around.