Reasons to Adjust Your 2014 W-4 Withholding Form

Every time you make some money you are going to owe taxes most of the time. The amount of money that you have to pay is going to be based on your W-4. Your employer deducts taxes from your income based on the allowances that you claim on your W-4.

This system works well for standard tax payers who file single, work one job, and claim the standard deduction. However, if you do not have those characteristics you are more than likely going to end up paying too much or too little.

When too much money is being withheld from your pay check you end up giving the government an interest free loan and receive a refund check at the end of the year. There are better ways that the money could be spent.

However, if you have to little withheld from your pay you could receive an unexpected tax bill or even be penalized for not paying enough. Either way you can manage your hard earned money better.

In order to make sure that you are paying the right amount of taxes you have to always make sure your W-4 is up to date. Whenever you have a life change take place you should update your W-4.

The goal is for you to be able to reduce both your bill and refund as close to zero as possible. However, if you are someone who expects a big tax refund every year you have to pay attention to your withholdings as they impact your refund amount.

Five Life Changes That Require You to Update Your W-4 Withholding

Some of the events that take place in your life may cause you to have to pay more taxes while others will allow you to lower your taxes thanks to tax credits and deductions. The events list is long but we are going to discuss the five most common tax changing events.

You Start Working a Second Job: Getting employed at a second job is one of the main reasons that tax payers have to adjust their W-4 withholdings. Any time your income increases your tax liability is going to go up as well which results in your W-4 needing to be updated. In the event that your second job is a side job that does not require a W-4 you will need to adjust the W-4 at your primary job.

Your Spouses Starts a New Job or Switches Jobs: Any change in household income must be documented as it could put married couples in a different pay bracket which modifies both of your allowances. So, you must combine your income to determine your allowances. Once this is done one spouse can claim them all or you can divide them on both W-4 tax forms.

You Are Unemployed During the Year: If you are laid off from your job and do not work for the remaining portion of the year more than likely too much tax has been paid. If you get a new job during the year you are going to have to make adjustments for downtime. To avoid having too much money withheld from your income you should increase the allowances when filling out a new W-4 form.

You Get Married or Divorced: Marriage and divorce definitely change your tax rate especially if both parties are employed. If you are married and file jointly you will qualify for a lower tax rate and other deductions. However, if you get a divorce you will go back to the single filing status and will no longer have a lot of the tax benefits that you used to have. You can use the W-4 calculatorto insure that your withholdings are accurate.

You Have a Baby or Adopt One: Adding a new baby to the home is not only a joy but it is considered to be a major tax event as well. You will be eligible to claim additional allowances and you may even qualify for tax credits such as the Child Tax Credit, Child Care Tax Credit, and others. If you adopt a child there is a tax credit for that too. Having a baby can definitely allow you to reduce your withholding amounts. If you do not adjust your W-4 you will have an unexpected large tax refund.

How to Adjust Your W-4 Withholdings

Adjusting your W-4 withholdings is something that is very easy to do. It can be done via paper or electronically. The old fashion way is for you to go through the worksheets on the W-4 form. However, the easier way would be to use the IRS Withholding Calculator. This tool makes it easy to determine your allowances. All you have to do is answer some questions and your withholding amount is calculated for you.

If the results for your withholding reveal a different amount than your current withholdings get a new W-4 from your employer. You are able to claim as many allowances that you qualify for.

Alternatively, if you want to increase your withholdings you can always enter the amount you want withheld on Line 6 of the W-4 (Additional Withholdings).  Your W-4 formcan be adjusted during any time of the year. However, keep in mind the further into the year that you adjust your W-4 the less of an impact it is going to have on your tax refund for that year.

Keep mind if you use TurboTax to prepare your taxes, you will be asked simple questions about your situation and recommended the filing status, credits, and deductions that will result in you getting the biggest refund ever.