With tax season over, now is a good time if you haven’t already, to review and make sure your federal and state withholding information are up to date for your job.
It may seem like a small thing, but making sure that your withholding allowances are correct this year can make a big difference come tax time next year.
Why Withholding Is Important
For most people, when they hear withholding, they think about all those little deductions eating away at their paycheck.
No one likes to see their pay shrink, but that money going to the federal and state governments actually helps you fulfill your tax obligations in a fairly easy manner.
Remember that nice packet of paperwork Human Resources gave you when you were first hired?
Employers use the information you gave them on your W-4 to deduct the proper amount of federal income tax from your pay and do the same for the state (if applicable).
Your Circumstances Change
One of the major reasons people change their withholding allowances is because their circumstances have changed. As a rule of thumb, you should review and update your W-4 and state allowances whenever you experience a major event, such as:
- getting married or divorced
- having a child
- having a significant change in deductions
While it’s not a guarantee, there is a very good chance your taxes will be affected. By revising your federal and state withholding, you can make sure you’re not having too little or much taken out of your paycheck.
If you’re looking for a helpful tool to guide you in filling out a w-4, please check out TurboTax W-4 Withholding Calculator. All you need is your last paycheck and last year’s tax return.
Besides your personal circumstances, you may also have to look over your allowances when there is an update to the tax code.
While federal changes usually get plenty of press, sometimes updates to your state’s tax codes aren’t as well publicized.
We recently had that happen to us in North Carolina. The Human Resources Department at my husband’s job sent out an email with a summary of the changes.
We went ahead and completed the worksheet and discovered that our allowances did in fact change. After receiving the new amount in his pay, we have a better idea of our budget going forward this year. That knowledge in turn helps us plan out our financial goals to tackle in 2014.
Thoughts on Handling Your Withholding
I’d love to hear from you and get your stories. Have you had any big changes with you or your family’s finances? Have you updated your withholding information?