Around the beginning of the year, employers typically ask their employees to provide new W-4s. You may have already done that. If you have updated your W-4 recently and did so without knowledge of the consequences, it may be appropriate to revisit the issue and have this office assist you in completing an appropriate W-4 that suits your unique circumstances.
Owing money at the end of the year or receiving excessively large refunds while struggling to make ends meet during the year may be an indicator that your W-4 has been incorrectly completed. There are many factors to consider when completing a W-4, such as those involving individuals and couples with multiple jobs and people who are having children, getting married, getting divorced or buying homes – and the list goes on!
That is why it is helpful to seek professional assistance and have a tax projection for the year.
The W-4 form that is provided to your employer establishes the amount of income tax that is to be withheld from your payroll. It allows you to specify your filing status and the number of dependent exemptions to be claimed on your tax return. This is where frequent errors occur.
Let’s say that you are married and have two dependents. On your tax return, you claim four exemptions. The natural thing for you to do would be to claim “married” and four exemptions on the W-4. However, for W-4 purposes, the exemption for the taxpayer and spouse are automatically built into the married rates, and only two exemptions should be claimed. The result, of course, is that the taxpayer ends up claiming more exemptions than he or she actually has, which can result in under withholding if the standard deduction is used, leading to the potential that tax may be due rather than the taxpayer being entitled to a refund.
It is also common practice and acceptable for taxpayers to claim additional exemptions when they have excessive withholding. The withholding tables do not account for large itemized deductions or other situations that might reduce taxable income.
Some taxpayers increase the number of exemptions to provide more take-home pay from their payroll checks. That might seem like a good idea at the time that they do it, but it could lead to an unexpected and difficult-to-deal-with tax liability when tax time rolls around.
If you wish to change your payroll withholding amount and are unsure about the results, this office can help you determine the correct number of exemptions to produce the desired result.
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