Updated: Feb 13
Did you get a REALLY large refund this year? (Or did you owe a LOT to the IRS this year?) The problem in both cases is usually that the withholding you are having taken out is not correct.
Maybe you like making an interest free loan to the Federal government. (When you over withhold, the Feds get to use your money and then give it back to you next April, interest free!) Or maybe you like borrowing from the Federal government. Their interest rates are way better than credit cards. Just make sure you pay them when you owe, since their “collection department” has a lot more painful tools they can use compared to the credit card companies.
So, if you would like to reduce your interest free loans to the government or are tired of owing a lot each year, if your withholding comes from your employer, then making some changes to your W-4 is all you need to do.
Some things you should know about the W-4. If you turned one in to your employer when you began employment, it is valid no matter how many years ago you filed it. Your tax situation has probably changed, but your employer’s computer is happily withholding per the original W-4. Maybe you got married or divorced since you started working there. Maybe you added some crum-crunchers (aka “dependents”) to your household since you started your employment. There is no limit on how many times you can file a new W-4 with your employer. Your employer is required to implement your new W-4 within 30 days of receiving it.
It used to be that the IRS required the employer to notify them when they received a W-4 with 10 or more exemptions. No more. Now, if the IRS thinks you keep owing too much and are not paying it off each year, they can send your employer a “lock-in letter” which over-rides any W-4 you file with your employer. So, if you really need to have 10 or more exemptions, you can file your W-4 without fear of having the IRS sticking their nose into your life to investigate.
The general rule for W-4s is to mark your current filing status. The withholding tables your employer uses are designed to match the various applicable tax rates of the filing status you tell them to use. So if you are married, then check the “married” box on your W-4, etc. Then the number of exemptions you take should usually be the number of actual dependent exemptions on your tax return…PLUS 1 more if you itemize your deductions instead of taking the standard deduction. Remember, this is the “general rule” and doesn’t take into account other sources of income or deductions.
There is a way to adjust your withholding for those exceptions to your income and deductions. On the W-4 there is a line right below the exemptions box called “Additional amount, if any, you want withheld from each paycheck” and this is where you can put a dollar amount that is added to the computed withholding amount per your filing status and exemptions taken. The easy rule, is to take the amount you under paid, divide by the number of paychecks a year and enter that amount on this line. (It works the same in reverse if you want to reduce your refund. Just make sure to put a minus sign in front of the amount you enter on this line.)
Did you hear? Prov 12:25 “Anxiety in the heart of man causes depression, But a good word makes it glad.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com Also on Facebook.