Is It Time To Adjust Your W-4 Withholding?

Have you changed your W-4 withholdings since you’ve been with your current employer? It may be that your life has gone through a number of changes since the last tax season, changes that could impact whether you’ll get money back or whether you’ll actually owe money. Before you’re hit with a hefty bill, learn what life events necessitate an adjustment to your W-4.

You Got a Second Job

Maybe you’ve started driving for a ride-sharing or grocery delivery service to make some extra cash. If so, it’s best to adjust your W-4 with your main employer to account for the extra income you’re making, income that the IRS will want a cut of. Even if your second job or side gig doesn’t require you filling out a W-4 form, you still need to account for the extra income. Also, the company will likely report your earnings to the IRS, even if they don’t send you a record of your earnings, which is common if you make less than $600. Don’t wait around for the IRS to knock on your door looking for their cut, take the proactive approach.

You Were Unemployed

Rather than making more money, maybe you’re making less money this year. If you manage to find employment again, go ahead and stop by a Tax Group Center and sit down with a tax preparer. You’ll need to find out how much you need to boost your allowances by on your W-4 with your new employer. That way, you won’t pay too much in taxes come the next tax season. While it’s great to get more of a refund than you planned on, that’s money you could be investing or saving and collecting interest on now rather than after you get your refund back later on down the road.

Your Spouse Changed Jobs or Got a Job

Maybe it was your spouse who got a second job or landed a new job. Either scenario will impact your tax situation, especially if you’re filing jointly. Any change in household income, whether it’s more or less money coming in, could change your shared tax bracket. Work with Tax Group Center Inc. to determine for sure how to modify your allowances. For instance, one of you may want to claim all qualifying allowances, or you may be better off splitting the allowances on your W-4s.

Your Marital Status Changed

While you don’t necessarily have to invite your tax preparer to your wedding or divorce proceedings, you should most certainly include her or him in the process. With both marriage and divorce, it’s easy to be so swept up in your emotions, whether good or bad, that you overlook essential financial aspects. For instance, newlyweds who file jointly qualify for a lower tax rate, in addition to other deductibles. On the other hand, if you divorce, your status will change to filing as a single person again.

You Started a Family

If you have a biological child or adopt a child, it’s considered as both a life event and a tax event. Your new dependent qualifies as a tax allowance, such as the Child Care Tax Credit and the Child Tax Credit. This is another life event that is likely to increase the size of your refund; but again, it’s better to go ahead and gain access to that money sooner rather than later.

Life events can have both major and minor impacts on your tax situation. For that reason, it’s best to sit down with a tax preparer a few times during the year and discuss current changes in your life, no matter how small those shifts may be. You never know when your new situation necessitates an adjustment to your W-4 withholding. Take steps to maximize your refund without wasting time or money.