Setting Withholdings Properly

Changing jobs isn’t the only time you should review how much they’re taking out.

Monitoring the amount that’s going to Uncle

Sam will help you match withholdings with your actual end-of-year liability. Income tax is withheld from your wages, as well as other types of income. If enough isn’t taken out because of your withholding submissions, you could end up owing on your final return. If too much is taken out, the government holds on to your money all year until a refund finally arrives.

HOW TO CHECK

Check your withholdings when personal or financial changes take place that might impact your liability. Life events like buying a home, getting married or divorced, or having a baby are some of the most common times when you might need to shift withholdings. If you’ve experienced any of these changes since the last time you filed, your tax requirements may have changed too. You may also want to use the IRS’s withholding calculator if your pay changes to make sure the correct amount is being withheld so there isn’t a surprise at the end of the tax year.

MAKING A CHANGE

Exemptions and adjustments made in a timely manner will keep you from owing or having a large refund that indicates you have paid in too much. After determining the changes you want to make, request that your employer provide Form W-4, which is called an employee’s withholding allowance certificate. Change the withholding status, allowances and other details to match your new income figure and then return it to your employer. In some cases, companies may allow withholding changes to be made online.

ADDITIONAL CONSIDERATIONS

Withholding changes may need to be made based on non-taxable income like IRA distributions, dividends, interest, capital gains and gig-economy income. Itemized deductions can also play a role in your final annual income figures — including gifts, education credits, child or earned income tax credits and medical expenses. For instance, those who purchased plans through the Health Insurance Marketplace should receive Form 1095 at the start of the filing season. This form, which will help complete your final return, indicates the coverage you and your family had, any premium assistance, and reports total monthly premiums paid. In some cases, you may be eligible for the premium tax credit, which would also raise your final income.