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Every paycheck you receive, you may notice that a certain amount of money is withheld for a variety of reasons. A good portion of this money goes into paying taxes, although you may be paying more than you need to. If this is the case, you generally wind up getting some of it back when you file your taxes, which can be nice. However, having a bit of extra cash each paycheck is pretty nice too.
On the other hand, if you aren’t paying enough taxes each paycheck, you could wind up owing taxes come tax season, and that isn’t fun either. So how do you know if you are paying too much or too little? It all has to do with your deductions. That’s something you typically declare when you fill out a W-4 withholding form. This is normally filled out when you start a new job. However, there are many reasons you may want to update it and change the deductions at certain times in your life.
If you have more than one job, you will definitely want to consider updating one or both of your W-4 forms at each employer. A higher income from two jobs means your tax liability increases as well. Adjusting the deductions to account for a higher income can help save you some money on each paycheck.
A marriage or divorce can affect your tax rate. You qualify for a lower tax rate if you are filing taxes jointly with a spouse, and a divorce will eliminate many tax benefits. You’ll want to make sure your W-4 deductions are updated accordingly for either situation.
A child counts as an additional dependent and provides you with many tax credits and benefits. If you leave your tax withholding form as it is, you will likely receive a larger tax refund. On the other hand, if you adjust your deductions on your W-4, you will have more take-home money in each paycheck.
If you file jointly with your spouse and he or she also has income from a job, you may both want to consult with a tax attorney or accountant to see what the best course of action is regarding changes to your W-4 forms. The right adjustments can give you the best tax break without you having to worry about owing too much at tax time. If you file online, be sure you’re using one of the best tax services. Check out our H&R Block review or TurboTax review.
Keep in mind that adjustments made during the year rather than at the beginning will result in less of a change in your taxes that year.