It’s the week before Tax Day. If you have already prepared your variation of the 1040, the following thoughts may have run through your head:
- “I owe WHAT!”
- “Thanks God! I don’t owe a penny!”
- “Woo Hoo! I got $2,500 back! Cha-Ching!!!
When it comes to federal income taxes:
- If you owe, you paid too little during the year.
- If you broke even, you are doing fine.
- If you are receiving a refund, you overpaid too much during the year.
Now consider, when was the last time you completed a Form W-4? Chances are that it was around the time you were hired by your employer. A number of people, especially those in entry-level positions, don’t give a second thought to the idea of updating their W-4 on a yearly basis; however, the IRS states that employees may “want to change the number of withholding allowances or his or her withholding rate (marital status) on Form W-4 for any number of reasons, such as a marriage, a change in the number of dependents, or a change in the amount of itemized deductions or tax credits anticipated for the tax year.”
Form W-4
The purpose of a W-4 is to inform the IRS and your HR/Payroll Department about the number of exemptions you will need to take during the year. Due to legalities, no one at your company should instruct you on how to complete the W-4. Only you, your spouse, your tax specialist, and, possibly, the IRS should have a hand in the matter. The problem is that circumstances changes – children are born, marriages are created, divorces are survived, and people simply forget to update this form when their lives are impacted.
The W-4 can assist you with identifying the amount of taxes you will owe at the end of the year. Some people tend to complete the Personal Allowances Worksheet (Lines A through H), then notate the appropriate information in the Employee’s Withholding Allowance Certificate (Boxes 1 through 7), and call it a day. If you are lucky, your new employer has already completed Boxes 8 and 10 for you.
If you continue onto Page 2 of the form, you will find the Deductions and Adjustment Worksheet. This area of the W-4 may help you plan better for your tax circumstances throughout the year and minimize the amount of taxes overpaid or underpaid. If your household has two wage earners or individuals with multiple jobs, you will want to complete the next section, “Two-Earners/Multiple Jobs Worksheet.”
Online Withholding Calculator
One other tool you can utilize is the IRS’ online Withholding Calculator. This calculator requires a bit more information and additional circumstances (i.e. age, blindness, childcare credits, HSA information, and other adjustments) are taken into consideration. Once you complete the online Withholding Calculator, you can plug in the numbers onto the W-4. You may be able to update your withholding information online.
Paperless W-4
If your employer is using an online Human Resources Information System (HRIS), then you may be able to update your withholdings within the system. If your HR/Payroll Department has enabled the paperless W-4 feature, they should inform you how to update your withholdings if you are using software developed by ADP, Ceridian, Lawson, PeopleSoft, and Spectrum.
Here is a listing of other events that impact your tax situation according to the IRS.
Debt Free Family Tree 