The amount of tax withholding exemptions claimed on a given tax return has a direct effect on the resulting tax refund. If too many exemptions are withheld, it can result in tax underpayment. When claiming too few exemptions, taxpayers may end up overpaying taxes.
For employees on a company payroll, withholdings are deducted directly from employees’ paychecks. The amount withheld is sent to the IRS. The amount held back depends on the taxpayer’s W-4 information. The IRS has provided a new WSet an access token first-4 calculator to estimate the amount of withholdings needed.
For taxpayers, it may be beneficial to review their withholding strategy. This helps avoid large tax bills.
When should taxpayers review their tax withholdings?
Taxpayers should review their tax withholdings at the beginning and at the end of the year. This helps ensure that the right number of exemptions have been claimed. It may also be useful to periodically check withheld amounts throughout the year.
They should also review their withholdings if they have experienced any significant life changes in the past year, including job loss, birth of a child, and other major events. This also applies if they owed taxes or were given a large tax refund.
How should taxpayers pick their tax withholdings?
Taxpayers should claim as many exemptions as necessary to withhold an amount close to what they would owe the IRS. They should consider their filing status, number of dependents, and income. They may also use a tax withholding calculator for help.
What is the marriage tax penalty? How does it affect a taxpayer’s tax bill?
The marriage tax penalty refers to a combined income, if it puts the couple into a higher tax bracket when filing jointly versus single. In such cases, the married tax penalty may affect their tax bill. It is important for the couple to discuss each of their W-4s, to avoid both claiming too many exemptions. It is advised that couples consult with a tax professional.
What happens if you’ve underpaid your taxes?
If you’ve underpaid your taxes last year, you will owe a balance when filing. It is cost-effective to pay the amount due when you file or by April 15th. If needed, the IRS allows taxpayers to pay their tax bill in installments. Taxpayers may also use a personal loan or credit card for this, although it would be better to pay with a cash advance instead to avoid extra fees.
- How can taxpayers adjust their withholdings?
For taxpayers, adjusting their withholdings is a simple process. They need to submit a new W-4 to their employer. This provides the new amounts to be withheld. Taxpayers can usually get a new copy of their W-4 from their human resources or payroll department. Alternatively, they can get them from the IRS website.
To change the amount of tax withheld, taxpayers can use the Personal Allowance Worksheet on their W-4. It’s important to remember to change state tax withholdings as well.
“Get Ready for Taxes: Plan Ahead for 2018 Filing Season to Avoid Refund Delays.” Internal Revenue Service. Accessed February 20, 2018. https://www.irs.gov/newsroom/get-ready-for-taxes-plan-ahead-for-2018-filing-season-to-avoid-refund-delays.