Because you do not wish to end up paying the IRS extra money at tax time, figuring out the amount to withhold in your W-4 worksheet is important and can be complicated. You also do not want to receive a substantial tax refund if you are wise, because you are letting the government borrow your money minus interest. You adjust your tax withholding, maximize your tax paying efficiency and perhaps even pay less than you normally would need to pay. In any case, summer can be a great midpoint to check your tax withholding to make sure you do not get caught short when you file your taxes next year.
People assume up with a tax reimbursement after filing taxes is a positive situation, similar to a savings account; however, what you’re essentially doing is loaning the government your money interest-free. There are much better ways to have the money deducted without you really noticing the difference. You can have that portion of your paycheck placed into a mutual fund or a savings account that accrues interest. This money adds up and you are making interest off it as it sits there in reserve. What you owe in taxes will only be what you pay. You keep the rest.
Ensure that your tax withholding is right by regularly reviewing your exemptions as they might change during the year. November or December is a good time to schedule to do this in advance of the upcoming year. Always make sure you check and update if necessary your tax withholding after you have filed your tax returns.
When life changes take place, make sure that you’re not under or overpaying tax withholdings. If you’re changing your dependents, bearing a child, or getting divorced or married, go back and review the amounts of your tax withholding. By correctly filling out your W-4 worksheet, you could easily avoid overpaying or withholding with the IRS considerable extra amounts of money. It is easier than it looks at first if you take the effort to fill out the W-4 worksheet.
Based on your specific case, it may be beneficial to discuss your withholding levels with a tax professional. Even if you have already completed filling out the W-4 form at your present job, you can always change the withholding amount and update it throughout the year. If you happen to lose your job and have to take a lower paying job, or if you happen to get a promotion with a significant increase in pay, you will want to check your tax withholding amount and make sure that you’re on track to only pay what you need to have withheld with the IRS. For more information on Tax withholding this Summer visit the IRS website.