Life changes that could affect your tax withholding

Most folks have their income taxes, both federal and state, withheld from their paychecks.

 

While your employer (or, in many cases, the payroll company it hires) will take care of the amount that comes out each pay period, it's up to you to make sure it's correct.

Filling out your W-4: Your withholding is based on the information you provide on Form W-4. The key factor on this document is your number of withholding allowances.

The more allowances you claim, the less tax withheld. The reasoning is that you need the money in hand each payday to take care of all those responsibilities, typically family members, that the added allowances indicate you have.

It works the other way, too. The fewer allowances claimed on a W-4, the larger your withholding amount. This could produce a refund when you file your return.

While some folks fudge the numbers, either by adding more allowances to get more in each paycheck  or by claiming fewer so more will be withheld, as a savvy taxpayer your goal should be to have withholding match as closely as possible your eventual tax bill.

Changing your W-4: Generally, you can submit a new W-4 whenever you want to change your withholding allowances for any reason.

But you definitely should adjust the form's allowances when you have major personal and/or financial changes in your life.

The table below has some common examples of situations in which you should adjust your withholding.

Circumstance	Examples
Lifestyle change	Marriage Divorce Birth or adoption of a child Loss of an exemption Purchase of a home Retirement Chapter 11 bankruptcy filing
Wage income	You or your spouse start or stop working You or your spouse start or stop a second job
Change in the amount of taxable income not subject to withholding	Interest Dividends Capital Gains Self-employment income Gambling or prize winnings Tax-deferred retirement plan distributions
Adjustments to income	IRA deduction Self-employed retirement plan contribution Student loan interest deduction Moving expenses Certain educational costs Alimony paid
Itemized deduction changes	Major medical expenses State and local taxes paid Charitable donations Job expenses
Became eligible for tax credits	Child tax credit Child and dependent care expenses American Opportunity education credit Lifetime Learning education credit Earned Income Tax Credit

Withholding change timing: When you do submit a W-4, if your employer or payroll company is efficient, you can see the changes in the next paycheck.

But technically, your boss has until the start of the first payroll period that's 30 or more days after you turn in your changes. So don't dally when you have a life change that affects your taxes.

And if you don't give your employer a completed Form W-4, your boss must withhold your income taxes at the highest rate. That's as if you were single and claimed no withholding allowances.

So don't take W-4 duties lightly.

Make sure you fill out the form correctly when you're hired. And adjust your withholding as needed throughout the year as needed.

You also might find these items of interest:

• The pros and cons of tax refunds
• Why exemptions are so excellent
• SC woman uses tax refund to pay year's rent

source http://feedproxy.google.com/~r/DontMessWithTaxes/~3/_RVJEA2DTMs/life-changes-that-could-affect-your-tax-withholding.html