WHILE YOU MAY ONLY think about your income tax on or around Tax Day, in actuality, you’re likely paying taxes on your income regularly throughout the year via what’s known as “withholding.”
Think back to when you first got your job. Your employer likely had you fill out a W-4 form, which helped determine how much income tax your employer pays to the IRS on your behalf each pay period, based on factors like your filing status and number of dependents.
But what if your circumstances change? What if you suspect that your W-4 needs updating or that you’re overpaying or underpaying income tax throughout the year? Adjusting your withholding is an important exercise to take if you want to make sure you’re not overpaying or underpaying taxes every pay period.
Here’s what to know about adjusting your withholding.
When Should I Adjust My Withholding?
You may want to adjust your withholding when you have a major life change that could affect your tax liability, such as marriage or a pay raise, wrote Charles Capetanakis, certified public accountant and partner at Davidoff Hutcher & Citron in New York, in an email.
Below are common life changes or events that may cause you to adjust your withholding:
You received a large tax refund.
You paid a large tax bill.
You were married in the previous year and will file taxes jointly.
You got divorced and are now filing taxes as single or head of household.
You had a child.
You experienced a change in income via a new side hustle, income stream or pay raise or decrease.
It also makes sense to look at your withholding regularly and adjust as needed, Capetanakis says.
Your withholding will be determined by your income, your spouse’s income (if married filing jointly), your dependents, marriage status, ability to take certain tax credits and other personal and tax information…..Read more>>