How can you get the most out of your withholding?
And what exemptions, adjustments, deductions, or credits you can expect to claim on your return?
When you start a new job the hiring manager should provide you with a W-4 to complete. The W-4 is usually everyone’s first introduction to income tax withholdings, so if you haven’t already seen one, or you’ve just started a new job, here’s one.
The W-4 helps your employer determine how much to take out of your paycheck every pay period for taxes based on your allowances. Your employer will match deductions for Medicare and Social Security, but the federal and state income tax are yours alone to pay.
Your employer’s decision is based on a couple of things. One, how much you’re making, including regular pay, bonuses, commissions, and vacation allowances. And two, your status and the number of allowances you claimed. The more allowances you claim, the less your employer takes from your paycheck.
You also have it within your control to have an additional amount withheld. Why would anyone in their right mind do this? Well, generally you want the number of exemptions that result in withholding to be as close to what you owe as possible. And if you expect to owe more, you might consider having more withheld.
For example, if you’re joint filing with a spouse who also works, you should keep in mind the “marriage tax penalty,” will result in you both owing more than an unmarried couple and you can make up for the difference by reducing your allowances. You may be providing a virtual loan to the government interest-free, but it’s a small one and it may be worth the peace of mind.
Remember, you can submit a new W-4 to your employer at any time, so this isn’t do or die. You’ll want to do this if your marital status changes, you have kids, you owed over $100 last year or received a big refund or can no longer can be claimed as a dependent.
A few more things…
In the case that you begin working a second job, you’ll have to update your existing W-4 and complete one for your new position. You cannot claim the same allowances on both, so you will have to split them. Also, if you’re a student working summers or part-time you are exempt from withholding.
Note: Get your W-4 back to the hiring manager right away. If it isn’t turned in promptly, you’ll be charged the maximum withholding!