Many of us would like to receive more take home pay on our paycheck. And for many people this is possible. If you started a new job, got married or had a child you may want to adjust your withholding on your paycheck to increase your take home pay.
The goal with withholding is to come as close to your actual end of year tax liability. The federal income tax is a pay-as-you-go tax. In other words, you must pay the tax as you earn or receive income during the year. Your withholding as an employee is based on the number of allowances you claim when you file a Form W-4 with your employer. Therefore, you can change your withholding with a new Form W-4 provided to your employer at any time during the tax year to accomplish this goal, so it is a good idea to check your withholding throughout the year to make sure that you are withholding the correct amount.
There are many reasons to change your paycheck withholdings including starting a new job, owing taxes this year and any major life event. Be aware of any other sources of income that you have where there is no or very little withholding that will increase your tax liability, such as interest, dividends, capital gains, etc. If this increases your tax liability, you will want to adjust your withholding amount on your Form W-4 or make Estimated Tax Payments. However, the most common reason for adjusting your withholding is if you received a big refund last year and anticipate receiving one this year. Many people view a refund as a savings plan, but in reality it is an interest-free loan program for the federal government. Rather than waiting to file your taxes to receive your refund, complete a new Form W-4 to adjust your paycheck withholdings so you can instead receive the money in each paycheck.
If you are unsure of what to withhold, you should check out the withholding calculator which will provide a good estimate of what changes you should make. This is something that you can check throughout the year to determine if adjustments are necessary.
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.