There are times when you may need to adjust the amount of income tax that is being withheld from your pay. By being aware of the changes that can affect your tax liability, and giving your employer a revised Form W-4, you can adjust your withholding to more closely match your actual tax liability. This way, you can avoid an underpayment penalty when you file your return, or instead of receiving a big tax refund in the spring, you can have use of your money all year.
When you first start working for a new employer, you fill out a Form W-4, Employee’s Withholding Allowance Certificate, which lets your employer know how much federal income tax should be withheld from your pay. But after you have submitted this form, you may experience changes that affect your tax liability. You can provide your employer with a new W-4, changing your withholding to more closely match your actual tax liability.
When To Check Your Withholding
If your personal and financial situation has not changed significantly since last year, and when you filed your return for last year you did not owe tax and your refund was not excessive, you probably do not need to be concerned about your withholding tax. But if your situation changes, the earlier you check your withholding, the easier it will be to have the right amount of tax withheld for this year.
There are certain times in particular when you should check your withholding to determine if too much tax, or not enough tax is being withheld:
When you receive a paycheck for the new year that covers a complete pay period, so that you can check your withholding based on current year tax rates.
When you prepare your tax return for last year and you find that you owe tax or you have a larger refund than you expected.
When you experience changes in your personal life or in your financial situation that affect your tax liability.
When there are tax law changes that affect you.
When you have a change that decreases the number of withholding allowances you are qualified to claim, such as if you get a divorce when you have been claiming married status, you must give your employer a new W-4 within 10 days. If you have a change that increases the number of withholding allowances you are qualified to claim, such as when you have been claiming single status and you get married, you are not required to submit a new W-4, but it may be to your advantage to do so.