We all, unfortunately, have to have taxes withheld from our pay since our tax system is a pay as you go one. So, how do you know the right amount is being withheld? For starters you can look at your last year’s tax return. If you got a large refund or owed a large amount in to the IRS than you probably should look into the amount you are having withheld. Also, if you have any changes that may affect the amount of tax that is owed on your next return you may want to look into changing your withholding.
So, what might cause your tax liability to change from the last year? Here is a helpful list of some common items that may trigger the need to change your withholding.
- You got married or divorced.
- Your spouse left or got a new job.
- Your dependents change.
- Purchased or sold your home.
- You took on or left a second (or third!) job.
Now that you have determined that you may need to change your withholdings how do you go about finding out what to change it to? Luckily, the IRS has a handy calculator to assist in finding out what you should claim on your W4 form. You can find this calculator here.
Remember, if you choose to you can always increase your withholdings if you would prefer to have a larger refund when April comes around. Some people like to think of it as an interest free savings account. Personally, I think of this system as more of an interest free loan to the IRS, but to each their own.
