The Complete Guide to Changing Your Tax Withholding

Your tax refund may be directly related to your withholdings. Understanding how to fill out or amend your W-4 form will help you maximize your tax return.

What you will discover:

What effect does my W-4 form have on whether or not I get a tax refund?
What actions should I take to complete my W-4 form?
How can I determine if my tax withholding is correct?
Is it possible to change my tax withholding at any time?

Filling out a new W-4 form, also known as an Employee’s Withholding Certificate, may not be the first thing that comes to mind when you start a new job or go through a big life event. However, adjusting your tax withholding might result in more money in your bank account throughout the year or a lesser tax payment each April. The answers to frequently asked questions will help you understand when and how to amend your tax withholding or W-4 form.

What effect does my W-4 form have on whether or not I get a tax refund?

Employers are obligated to withhold income taxes from each paycheck, and your W-4 form tells your employer how much you want withdrawn for income taxes. Employers are required by the IRS to have new workers complete a W-4 form. If you reside in a state that collects income tax, the W-4 form may also be sent to your state’s taxation authority.

If more tax was taken from your income than you owe, you may be eligible for a refund when you complete your tax return. whether you still owe income taxes at tax filing time, despite withholding taxes throughout the year, you should verify your W-4 withholding settings to determine whether you are withholding enough from each paycheck. You may owe money at tax time if you do not withhold enough taxes from your paychecks.

You may change your W-4 form at any point throughout the year. If you start a second job, get married, divorced, or have a child, you should reconsider your withholdings. Life changes like these may have a significant influence on your tax bracket, credits, deductions, and other benefits. The IRS permits you to file a new W-4 form in addition to revising your form. If you wish to raise the amount withheld from your salary owing to fears that you may owe money at the end of the year, you should fill out a new form.

Please keep in mind that if your only source of income is self-employment, you will not be required to complete a W-4 form. Individuals who work for themselves must instead make anticipated state and federal income tax payments four times a year. However, much with withholdings, if your projected tax payments exceed your ultimate tax burden, you may be entitled for a tax refund at the end of the year.

What actions should I take to complete my W-4 form?

The W-4 form has just a few stages that you must examine and then complete if the step relates to you and your scenario. Filling it out entails declaring dependents or requesting your employer to withhold a particular amount. While the IRS gives guidance, such explanations sometimes leave people with more questions. The following information may be useful when completing your W-4.
Your Personal Data

When you complete the necessary steps on your W-4, you are providing information to your employer that will assist them in determining how to withhold your income taxes. Consider the following before completing your form:

Will you work several jobs?
Do you anticipate receiving unearned income (or income from other sources–see “Other withholdings,” below)?
If you are married, do you intend to file a joint tax return with your spouse?
Do you have any dependents (see “Dependents,” below)?

If certain conditions are met, certain taxpayers may be exempt from withholding, which means they will not have taxes taken from their paychecks. The IRS, for example, enables taxpayers who had no federal tax due last year and anticipate to have no federal tax liability this year to claim exemption from withholding.
Dependents

You may note on your W-4 form that you are the parent of a minor or that you assist a college student. Children are considered dependents by the IRS if the individual claiming them provides more than half of their support. Notably, if certain conditions are satisfied, elderly parents may also be listed as dependents.

whether you are a college student, live with your parents, or both, and plan to file taxes, check with them to see whether they intend to list you as a dependant on their tax return.

Another typical source of misunderstanding is the presence of separated or divorced parents with minor and college-aged children. When parents do not file jointly, only one parent may claim a kid as a dependant. Separated or divorced parents should negotiate who claims a dependent and other credits before submitting their tax returns, since the IRS has the authority to reject both returns.

If you are claiming dependents on your own, make sure you are aware of any tax credits that may be available to you. For example, you might earn the child tax credit for each dependant under the age of 16 you support.
Withholdings for several employers

Working numerous part-time jobs or a full-time job with a part-time job might make calculating your withholding amount more difficult. This is because tax withholding is dependent on the job, not the employee. Part-time employment often have a low enough income level that the employer withholds little to no state and federal income taxes. To compensate, you may request that one or more of your employers raise the withholding amount by designating an extra sum on your W-4 form.

If you are married and both of you work, you may need to enter an extra withholding amount to prevent paying too little tax all year. On the second page of the instructions, there is a section labeled Multiple Jobs Worksheet on the W-4 form.
Other deductions

Investment income, self-employment revenue, the sale of a vehicle or property, and gambling wins are all instances of non-traditional income. The worksheet included with the W-4 form leads you through the process of calculating any extra taxes you want withheld.

Confusion often emerges when it comes to collecting non-wage revenue in the form of private sales. This is particularly true for those who sell their handmade things online or at craft fairs. If you are positive that this sort of income will occur, you may want to consider modifying your withholding from your job to balance that additional taxable income in order to keep your monthly finances in line. See the Self-Employment portion of the W-4 Instructions page for further information.

How can I determine if my tax withholding is correct?

It may be difficult to strike the perfect balance when it comes to tax withholding. Withholding too little might result in a surprise tax bill in April. On the other hand, having too much withheld from your salary is equivalent to making an interest-free loan to the IRS.

While every tax situation is different, here are three general guidelines to help you decide whether to alter your withholding:
If you owe taxes, increase your withholding.

If you owe state or federal income tax after completing and submitting your tax return, you should consider revising your W-4 form to instruct your employer to raise your withholding amount in the future. Remember that you may make changes to your W-4 form at any point throughout the fiscal year.
If your tax refund is significant, reduce your withholding.

Although obtaining a substantial tax return is pleasant, keep in mind that you might have used part of that money yourself during the previous tax year. Instead of allowing the government to keep the money you payed in taxes, you might invest or save it to generate interest.
Consult with your tax expert after big life changes or events.

Income tax withholding may be a difficult and time-consuming task to work out on your own. An accountant or CPA may assist you in determining the most suitable withholding amount to bring you as near to the break-even point as feasible. Working with a professional may be particularly advantageous in certain situations:

Getting a new job.
Bringing a new kid into the world via birth or adoption.
Engagement, marriage, or divorce.
Being on the verge of retiring.
Changing tax brackets as a result of a salary or pay increase.
Declaring bankruptcy.
Receiving an heirloom.

This is only a sampling of the common instances in which you can benefit from obtaining personalized tax guidance to alter your withholdings.

Is it possible to change my tax withholding at any time?

Yes. The IRS understands that people’s job and family conditions vary, and that they may need to amend their federal withholding amount from time to time. You may also wish to adjust your tax withholding owing to a variety of other circumstances that may affect your tax obligation. These are some examples:

Income adjustments, such as taking an IRA or 401(k) withdrawal, or a new necessity to pay alimony.
Purchase of a new principal residence, vacation home, or rental property.
Itemized deductions and tax credits, such as the child tax credit, dependent care expenditures, charitable contributions, earned income credit, education credit, student loan interest, interest expenses, dependent care expenses, or medical expenses, must be taken into consideration.
To account for taxable income that is not subject to standard withholding. IRA distributions, self-employment income, capital gains, dividends, and interest income are all examples.

When you need to change your W-4 options, get a copy of your existing Employee’s Withholding Certificate (W-4 form) as well as a new W-4 form from your employer. To calculate how much to modify your withholding amount, go to the IRS website and utilize the Tax Withholding Estimator.