ICFiles
SOC 2

content

Secure File Transfer Soc 2 starts at $1 per month

Join Us

 

ICFiles Logo

 

Making Changes to Your Tax Withholding

Financial Planning

August 2014

Making Changes to Your Tax Withholding

If you claim too few exemptions on your W-4, you could be giving the IRS an interest-free loan each year. And while there’s an exuberance that accompanies receiving a tax refund each spring, you might be better off saving more money each month toward a goal rather than precipitously handing it over to Uncle Sam.

In fact, changing your paycheck tax withholding midyear can increase your take home pay. The quickest way to bring your withholding in line with what you will owe at the end of the year is to check out how much you withheld in 2013. If you received a substantial refund for 2013 and are earning the same level of income, you’re likely having too much withheld.

However, be sure to consider whether your 2013 tax return contained any large deductions or credits that you will not be able to claim this year. This might include substantial capital losses on investments, major medical expenses or the impact of a natural disaster. As for this year, you might marry, have a child or buy a home – so take into account any new deductions or credits you’ll be able to claim.

If you get married or divorced during the year, recognize that your filing status will officially change. Even if you don’t get married until New Year’s Eve, just the one day married in 2014 will mean your filing status changes for the whole year. By the same token, if you divorce by the last day of the year, you are considered unmarried for the whole year, so consider changing your W-4 when your divorce is final. You and your new or ex-spouse should also consider whether your household income will change substantially and move you into a different tax bracket. In fact, if your marital status from married to single or your personal circumstances reduce the number of allowances you are allowed to claim, you must give your employer a new Form W-4 within 10 days. You can claim only the number of allowances to which you are entitled. 

Consider, too, that if you work only part of the year, too much tax could be withheld. This is true if you plan to retire during the year. You can request that your employer use a part-year withholding method, in which less tax is withheld from each paycheck than would be withheld if you worked all year. To be eligible for the part-year method, you must use the calendar year (Jan. 1 through Dec. 31) as your tax year, and you must expect to be employed no more than 245 days during the year. To apply for the part-year method, you must make the request to your employer in writing. Include the date of your last day of work for any prior employer during the current calendar year, and state your intent to be employed no more than 245 days during the year.

If you believe you have too much money being withheld, you can make adjustments at any time throughout the year. Just complete a new Form W-4 with revised instructions or reduce your estimated quarterly payments. Remember, though, that there will be only so many tax withholding periods (paychecks or quarterly payments) left in the year to bring your withholding in line with your estimated tax.

Your employer is required to apply your new Form W-4 to the first payroll period ending on or after the 30th day after the day on which you give your employer your revised Form W-4.

As a general rule, you can avoid a tax penalty for not withholding enough money throughout the year if your total withholding and estimated tax payments are at least 90 percent of the total tax you will owe for the year, or at least 100 percent of what you owed the previous year. You also won’t be subject to a penalty if your total tax is under $1,000 or if you had no tax liability for the previous year.

Consult a tax professional for specific advice regarding your own situation.

 

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

Protected by Copyscape Plagiarism Finder

Dynamic Content Powered by Service2client.com
SEO Content Powered by DynamicPost.net

 

ICFiles
SOC 2

content

Secure File Transfer Soc 2 starts at $1 per month

Join Us

 

content

 
website bundles

MyWeb, WordPress
1 Click Hosting
Install free themes

websites

Hosting Bundles

 
 
Electronic Commerce

Copyright © 2024 Service2Client, LLC All Rights Reserved.
Terms of Service  |  Privacy Policy

CPA Website Content Powered by Service2Client.com


 

CLOSE