What are you currently withholding from your paycheck? Tax withholdings represent the amount of federal income tax taken out of your paycheck each pay period in preparation for your federal tax bill.
Most people do the standard withholding to which their employer defaults. Should you consider changing this number? How might that help you down the line?
Adjusting Your Tax Withholding
Adjusting your withholding represents an opportunity to ensure you don’t have a surprise tax bill in the future. Employers set a default percentage for this, but they don’t know your exact circumstances outside of what you have disclosed and likely will not adjust that withholding as your life changes.
You should consider adjusting your withholding amount when:
- You are self-employed or have any other source of income where standard withholding is not included
- You frequently end up owing on your federal income tax return
- You get married
- You have a child
- You change jobs and had a previously adjusted withholding at your former employer
The Internal Revenue Service (IRS) offers a Tax Withholding Estimator to help you determine what amount you should withhold from each paycheck. The tool takes into account income for you and your spouse (if applicable), additional income from other sources such as side jobs and investments, and your most recent tax return.
Tax Withholding Shields You From a Surprise Tax Bill
We regularly work with the people of Washington to help them get out of trouble with the IRS. Many of these hard-working individuals don’t even realize a hefty tax bill is coming. Additional tax withholdings will help keep you out of that boat.
Adjusting your withholdings allows you to pay for any additional, unexpected taxes from the IRS today instead of waiting until you end up with a large bill later on. Shielding yourself from those surprises provides a blanket of security for you and your family.
However, it is also possible to withhold too much. If you withhold more than you end up owing, you essentially are giving the Government an interest free loan that they back in the form of your refund. And you don’t want to withhold so much that you’re struggling to make ends meet. That’s why it’s best to sit down with a tax attorney to talk about your options and get a better understanding of your personal tax situation.Attorney Robert V. Boeshaar and his team will assist you in making important decisions that allow you to stay out of trouble with the IRS and keep your finances moving forward. Contact our offices today if you need to discuss this and other important tax topics that impact you, your business, and your loved ones.
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