How to Adjust Your Withholding
Did you get too big of a tax refund this year (yes, it’s possible to get too much back)? Or, did you end up owing too much money when you filed? That’s never fun.
If you’re employed, there is something quick and easy you can do to correct these situations. You can actually request that your employer make changes to your federal tax withholding (i.e. how much of your earnings they keep to pay your taxes).
In this post we’ll look at how to adjust those federal tax withholdings before you forget. This way, you wont’ end up owing too much (or getting too much back) next year.
How Federal Tax Withholding Works
Here in the U.S., the government has decided that it is best if employers be given the duty of collecting federal income taxes on behalf of their employees.
They execute this by taking money from the employees’ earnings prior to issuing a check or direct deposit. That’s the “how” of tax withholding. But the “how much” is a bit more complicated.
The IRS created the Form W-4 for employees to complete to help the employer know how much tax to withhold. The form includes a series of “allowances” that can be made to affect the level of withholding.
In short, the more allowance you make, the less federal tax your employer will withhold from your paycheck. Likewise, the fewer the allowances you make, the more taxes will be withheld.
When to Adjust Your Federal Tax Withholding
Your employer will require you to fill out a W-4 when you are hired. But they won’t typically require you to update the form after that time. It’s up to you.
It is a good idea to revisit your Form W-4 and change your withholding when one of the following takes place:
- You were refunded too much on your tax return.
- You owed too much on your tax return.
- You get married or divorced.
- Your spouse’s employment status changes.
- You have a change in the number of dependents.
- You purchase a home.
As you can see, there are many opportunities for you to revisit your withholding.
How to Adjust Your Federal Tax Withholding
To adjust your withholding, you will need to complete a Form W-4 and give it to your employer. Be sure to ask your employer the number of allowances you are currently making. Then, compare that number to the number of allowances you get when you complete the new Form W-4.
It’s also probably a good idea to visit the IRS withholding calculator to determine exactly how many allowances you should make. Once you know how many allowances you are currently making and how many allowances you should be making, it’s easy to make the requested changes and move on.
Remember, if you want more money withheld for taxes (increasing your refund, all things being equal), you need to decrease the number of allowances you are making. If you want less withheld for taxes (decreasing your refund, all things being equal), simply increase the amount of allowances. TurboTax makes it easy to adjust your W-4 within tax software and gives you top reasons to adjust your W-4 withholding.