You may be wondering if you should change your paycheck withholding amount in order to make ends meet. You may be wondering if you need to change it since you started a new job, just got married or had your first child. There are many different reasons to change your paycheck withholdings. It is important to realize that the withholdings do help you to not pay taxes at the end of the year. Here are five times you may consider changing your withholdings.
1. Starting a New Job
You started a new job. If you are making significantly more money, you may not want to claim as many exemptions. This depends on your family size. Generally, if you are single you should continue to claim one. This number ensures that they withhold enough so that you do not owe at the end of the year. If your spouse is working, then you need to determine how much each of you will claim and that may change when you start a new job. You should also double check your withholdings when you get a raise. The amount of taxes taken from your check will increase, which may make you feel like your raise is not what you thought it would be.
2. You Owed Taxes This Year
You should consider your tax withholdings if you owe taxes this year. There is nothing as disappointing as having to fork out money to the IRS at the beginning of the year. You can adjust your withholdings so that the correct amount is withheld. You can even request that extra money be withheld each pay period. This will save you the hassle of coming up with extra money at the end of the year to pay to the IRS. If your spouse is self-employed you can opt to have more withheld so you do not owe taxes.
3. You Received a Big Refund
If you received a large refund this year you should adjust your withholdings as well. Many people mistakenly look at the refund as an easy way to save money. You are essentially loaning the money to the government and not receiving any interest on it every year. You can exercise self-discipline or have the money automatically transferred to a savings account. Additionally if you qualify for the earned income tax credit you can have a portion of that paid to you throughout the year. You should also take into account other tax credits when determining how much you should have withheld.
4. You Started Your Own Business or Freelance
If you have just started your own business or you freelance on the side. You can often save yourself the hassle of paying your taxes quarterly by increasing the amount withheld from each of your regular paychecks. If you are primarily a freelancer or your freelance work brings in more than your normal job, you may consider beginning to file self-employment tax payments quarterly to avoid the penalty. If you use the IRS withholding calculator when you work for an employer and you are self-employed or you or your spouse is self-employed, you will need to add in the self-employment tax on your own. When you are using the calculator it does not include self employment tax in the calculation, and you will need to figure that amount out on your own, and add it into your tax liability.
5. Any Major Life Event
Any time that you have a life-changing event you should adjust your withholdings. These events include getting married or divorced, having a child or the death of an immediate member of your family. You can change your withholdings at any time. Some of these events are planned for, and some are not. As soon as you realize what the change will be you can make the adjustments, as long as the event ifs going to happen in the same tax year.
6. Use the IRS's Withholding Calculator
If you are unsure of what to withhold you should visit the withholding calculator at www.irs.gov. The calculator will have you enter your income, tax withholdings, and other information. The calculator will then tell you how much you need to have withheld. This tool can take the stress of estimating out. Additionally you can go back through the year to make sure you are still on track. Generally, it is a good idea to check when you file your taxes and again in August or September or anytime you get a a raise. You can begin prepping to file your taxes at the end of each year.