Many taxpayers have more taxes withheld from their pay than necessary. You should try to have your income tax withholding match your actual tax liability, especially if you normally get a large refund and you would like more money in your paycheck. If not enough tax is withheld, you will owe tax at the end of the year and may have to pay interest and a penalty. If too much tax is withheld, you will lose the use of that money until you get your refund.
The withholding calculator at IRS.gov can help you figure the correct amount of federal withholding and provide information you can use to complete a new Form W-4, Employee’s Withholding Allowance Certificate.
Life brings constant changes to individual financial situations. Things like marriage, divorce, a new child or home purchase can all be reasons to adjust your withholding. The earlier in the year you check your withholding, the easier it is to get the right amount of tax withheld.
“Check your withholding if you prepared last year’s tax return and received a refund that’s larger than you’d prefer or had a balance due that’s more than you can comfortably pay,” said Clay Sanford, an IRS spokesman in Dallas.
Before you begin, you need to have a few items handy: Your most recent pay stubs and your most recent federal income tax return. Here are some tips for using the withholding calculator:
•Fill in all information that applies to your situation.
•Estimate when necessary. Remember, the results are only as accurate as the information you input.
•Check out the information links embedded in the program whenever you have a question.
•Print out the final screen that summarizes your input and the results. Use it to complete a new Form W-4 (if necessary) and give the completed form to your employer. Keep the print of the final screen and a copy of your new W-4 with your tax records.
For many people, the withholding calculator is a great tool that can simplify the process of determining their withholding. Also, see Publication 919, How Do I Adjust My Tax Withholding, which is available at IRS.gov or by calling 1-800-TAXFORM (1-800-829-3676).
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