Filing taxes can be a daunting task, and owing a large sum to the government can be even more stressful. If you found yourself in this situation last year, you may be wondering what you can do to avoid a repeat this year. One option is to increase your withholding on your W-4 form. This will result in more taxes being taken out of your paycheck each pay period, which can help you avoid owing money when you file your taxes.
Who Should Consider Increasing Withholding?
Increasing your withholding may be a good option if you:
- Owed a significant amount of taxes last year
- Had a large refund last year
- Expect to have a higher income this year
- Have multiple jobs or sources of income
- Have dependents or other deductions that reduce your taxable income
How to Increase Your Withholding
To increase your withholding, you will need to complete a new W-4 form and submit it to your employer. The W-4 form is used to calculate how much federal income tax should be withheld from your paycheck.
When completing the W-4 form, you will need to provide your personal information, such as your name, address, and Social Security number. You will also need to indicate your filing status (single, married, etc.) and the number of dependents you claim.
In addition, you can use the W-4 form to adjust your withholding amount. There are two ways to do this:
- Increase the number of allowances you claim. Allowances are deductions that reduce the amount of tax that is withheld from your paycheck. The more allowances you claim, the less tax will be withheld.
- Enter an additional amount of money that you want to be withheld from each paycheck. This is a good option if you want to make sure that you are withholding enough taxes to avoid owing money when you file your taxes.
Benefits of Increasing Withholding
There are several benefits to increasing your withholding, including:
- Avoid owing taxes when you file. This is the most obvious benefit of increasing your withholding. By having more taxes withheld from your paycheck, you can reduce the chances of owing money when you file your taxes.
- Get a smaller refund. If you typically receive a large refund when you file your taxes, increasing your withholding can help you reduce the amount of the refund. This can be beneficial if you would rather have more money in your paycheck throughout the year.
- Avoid penalties. If you underpay your taxes by too much, you may be subject to penalties. Increasing your withholding can help you avoid these penalties.
Drawbacks of Increasing Withholding
There are also some drawbacks to increasing your withholding, including:
- Less money in your paycheck. When you increase your withholding, you will have less money in your paycheck each pay period. This can be a problem if you are already living paycheck to paycheck.
- No interest on overpayments. If you overpay your taxes, you will not receive any interest on the overpayment. This is because the government does not pay interest on tax overpayments.
Increasing your withholding on your W-4 form can be a good way to avoid owing taxes when you file your taxes. However, it is important to weigh the benefits and drawbacks before making a decision. If you are not sure whether or not you should increase your withholding, you should consult with a tax professional.
Additional Tips for Avoiding a Tax Bill
In addition to increasing your withholding, there are a few other things you can do to avoid owing taxes when you file your taxes, including:
- Make estimated tax payments. If you are self-employed or have other sources of income that are not subject to withholding, you may need to make estimated tax payments. Estimated tax payments are payments that you make to the IRS throughout the year to cover your tax liability.
- Contribute to a retirement account. Contributions to a retirement account, such as a 401(k) or IRA, can reduce your taxable income. This can help you avoid owing taxes when you file your taxes.
- Itemize your deductions. If you have a lot of deductions, you may be able to reduce your taxable income by itemizing your deductions on your tax return. Itemizing your deductions means listing your deductions on Schedule A of your tax return.
By following these tips, you can help avoid owing taxes when you file your taxes.
IRS Form W4 TAX ADJUSTMENT
FAQ
What does extra withholding do on w4?
Should I choose extra withholding?
Should I claim additional withholding allowances?
What happens if you withhold too much on your w4?
Should I withhold extra money on my W4?
Extra withholdings will reduce your tax savings and the amount of take-home money you receive in your paycheck. While doing so is optional, it may result in a larger refund at the end of the tax year. Example: If you want to save up $3,600 and are paid bimonthly, you should withhold an extra $150 on your W-4.
How do I change my tax withholding amount on form W4?
Use your estimate to change your tax withholding amount on Form W-4. Or keep the same amount. You don’t need to do anything at this time. Check your withholding again when needed and each year with the Estimator. This helps you make sure the amount withheld works for your circumstance.
Can I re-file a W4 if my employer withholds taxes?
If your employer withholds taxes on your behalf, you can submit a revised Employee’s Withholding Certificate (Form W-4). People may go years without the need to significantly alter their withholding status. However, when life changes do occur, it’s worth taking the time to re-file a W-4 with an adjusted withholding amount.
How much money is withheld on a W4?
The amount withheld depends on your marital status, number of dependents and jobs, and other deductions you claim on your W-4. To maximize your withholdings, you must complete the form accurately to let the IRS keep as much money as possible to give back to you at the end of the tax year.