Are you paying too much – or too little – taxes on tax day? You can fix that by making changes to the amount of tax withheld from your paycheck. You can increase or decrease the number of allowances you take on your W-4 form depending on your situation. Here’s what you need to know.
Fill out a new form
Ask your employer for a new W-4 form or print one out from the IRS website at https://www.irs.gov/pub/irs-pdf/fw4.pdf. To reduce the amount of taxes withheld from your paycheck, increase the number of allowances on line 5 of the W-4 form from the number you entered on your original W-4 form. To increase the amount of taxes withheld, reduce allowances on line 5 of the W-4 form to as low as zero. You may also elect to have additional tax withheld on the W-4 form.
The higher the number of withholding allowances you claim, the less tax will be withheld from your paycheck. Be careful not to claim so many allowances that you have a big tax bill on April 15. You should consider increasing withholding allowances if you:
- Regularly receive large refunds
- Have a child, which will alter your taxes owed
- Buy a home
- Experience an event which will lead to greater deductions at tax time
Reduce the number of withholdings
If you reduce the number of withholding allowances on your W-4, more tax will be withheld from your paycheck. You should consider decreasing withholding allowances if you:
- Regularly owe the government at tax time
- Receive non-wage income like earnings from a side-business, dividends, or interest
- Receive significant income from sources outside your regular job
Time to review
There are instances when you should review your withholdings to determine if you should adjust allowances up or down:
- Working two jobs or
- Transitioning to one job from two
For more information, talk to your Human Resources professional or your tax advisor.
Article provided by Local Government Federal Credit Union.