Do you fall into one of these categories recently?
- Changed jobs
- Got married
- Had a child
- Looking to take advantage of tax credits
- Overall confused by the W-4 form
If so, this post is for you! First, let’s start with the basics.
What is a W-4 form?
The W-4 is a form created by the IRS that dictates to employers how much tax should be withheld from their employees’ paychecks. Allowances are tallied to determine the amount of tax paid to the government each month. April 15 may be tax day, but technically, every pay period is! There are two approaches: either the allowances are high and you may not receive a tax refund or may even have to pay a tax bill in April or the allowances are low and you have less money in your bank account throughout the year to accrue interest or invest. It’s a fine balance.
Factors to consider when filling out a W-4
As you fill out your W-4, consider these factors within the scope of your financial goals. Ultimately the W-4 is a tally of allowances. You can include allowances for yourself, spouse and children. Other important scenarios are if you work two jobs or your spouse works. In either of these cases you may need to fill out the personal allowance worksheet to account for the additional income that may bump you up to a higher tax bracket. If you don’t account for this, you may not be paying enough tax for any one job and could be hit with a surprise in April.
For newly married couples, or couples where one partner recently started working, it may make sense to select the allowances based off a combined income and then have one partner claim all of the allowances and the other none.
For families with children, they may be eligible for a child tax credit or childcare tax credit that could impact their tax bracket. This is because your withholding may be reduced due to these tax deductions.
Why should you update your W-4 with new life events?
Getting married, having a child or losing a job will change your tax filing status. At these importance milestones in your life, it is important to review your allowances and determine how they should be adjusted. The goal is to pay the right amount of tax, but to do this you must review and update your W-4 regularly.
When can I adjust my W-4?
Now! Changes to a W-4 can be made anytime during the year. If you have more questions about getting the most out of your W-4 filing, reach out to Ferguson, Timar & Company.
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