Adjusting Tax Withholding
Are you banking on a tax refund this year? Or do you fear what you owe? Thought about reviewing your W4 and adjusting your withholdings?
Someone once said, “Invest a few moments in thinking. It will pay good interest.” I agree!
If you earn an income, you probably pay taxes. A W-4 form determines that amount based on allowances you claim. Withholding too much from paychecks causes tax refunds that could be put to better use by you throughout the year. Not withholding enough results in a tax bill or even a penalty.
Updating your W-4 regularly and anytime you have a major life change. Some create more taxes, but others grant credits and deductions that lower taxes. A few moments spent studying your W4 could be a very beneficial use of time.
Adjust the withholding from your paycheck or if you are self-employed, adjust your quarterly estimated payments to get as close to a zero-tax refund as possible.
Anytime there’s a change in household income, taxes are affected. If married, combine your income to figure the allowances. One spouse can claim them all, or they can be divided between the W-4s. Marriage or divorce require adjustments to allowances. A new birth or adoption creates tax benefits that left unaccounted for will grant a larger than expected refund. Job loss or unemployment requires adjustments to avoid paying too much tax.
You can adjust on paper, or electronically through the IRS Tax Withholding website. TurboTax has a W-4 Withholding Calculator that’ll help you determine your allowances. If you discover your current withholding is different from what the calculator states, then ask your employer for a new W-4 to make the update. The earlier in the year you do this, the greater the impact on your taxes.
In September of last year, the IRS reported that 83% of the returns resulted in an average refund of $3120. That’s a $260 a month tax-free loan to the government. Think about how you could better manage that money and adjusting your W-4 today!
If you’re counting on a tax refund to pay off your credit card debt, get in touch with Christian Credit Counselors. They can help you make a pay off plan and learn how to avoid debt in the future. Learn more at crown.org/ccc or call the Crown Help Line at 800-722-1976.