By: Charlestien Harris
If you are a sports fan, then you know what March Madness is all about. The month of March is a great time to look at your finances ahead of tax season, and I’m here to help you through the madness!
This week, I want to help make sure your W4 is completed correctly to ensure you are having enough taxes deducted from your paycheck. It can quite possibly add additional money to your paycheck or prevent the madness of owing the IRS at the end of the year!
While preparing tax returns as a VITA volunteer, I always have several clients complain about having to pay so much back to the IRS at the end of the year. Many times, I’ll notice that those same clients often have little to no taxes deducted from their paycheck.
I try to explain to them one of the ways to correct that issue is to complete a new IRS W4 tax form that they can get from their employer’s personnel department. What does a W-4 form do? It provides information to your employer so they can determine how much to withhold from your paychecks. Accurately completing your W-4 and getting all questions answered can help you avoid overpaying your taxes throughout the year or owing a large balance at tax time.
However, not taking the time to understand the W-4 in plain terms can lead to problems such as withholding too much or too little from your paycheck. If you do not fill out a new W-4, your employer is instructed to withhold income taxes at the highest rate for single filers, with no other adjustments unless indicated by the taxpayer. Now you know why I see so many folks with big tax time payments due!
To get you on the right track, I’ve created a few easy steps to follow to get your W-4 completed, and save you a headache at tax time.
Step 1: Enter your personal information. The first step to completing the W4 is to enter your name, address, and Social Security number. Make sure your name is just as it appears on your Social Security card. It is an IRS requirement for the name you enter on the form to be identical to the one on your Social Security Card. If this is not the case, you may need to contact the Social Security Administration to ensure you receive credit for your earnings.
You must also decide what your tax filing status will be. You can choose Single, Married filing separately, Married filing jointly, Qualifying widow(er), or Head of household (for taxpayers who are single and pay more than half the costs of keeping up their home for themselves and a qualifying individual).
Step 2: Accounting for multiple jobs or a working spouse. The second step applies only if you have more than one job at the same time or are married filing jointly and you and your spouse both are employed. If one of these scenarios applies to you, then you have three options:
- Use the IRS’s Tax Withholding Estimator tool, which most accurately calculates the additional tax you need to withhold. Apply these withholdings in step 4C of your W-4.
- Use the IRS’s Multiple Jobs Worksheet, located on page 3 of the W-4 if you and/or your spouse work either two or three jobs at the same time. After filling out the worksheet, enter this amount into 4C on your W-4.
- If you and/or your spouse work a total of only two jobs, you can simply check the box located at 2C of the form (you must check the box on the W-4 form of your other job as well). By checking the box, your standard deduction and tax brackets will be cut in half for each job to calculate withholding.
Step 3: Claim dependents. If you have dependents, the IRS has a tool that can help you determine who you can claim as a dependent. You can only claim dependents if your income is under $200,000 or under $400,000 if you are married filing jointly.
If you have children under 17 years of age, multiply the number of children you have by $2,000. If, for example, you have three children under 17, enter $6,000 in the first blank. If you have other qualified dependents, you can multiply the number of them by $500. Enter this amount in the second blank of the third section.
Step 4: Factor in additional income and deductions. The optional fourth step accounts for other adjustments you can make. You can include other income you receive not related to jobs such as interest, dividends, and retirement income. You can also withhold additional tax from your paychecks for each pay period, including any amounts from the multiple job worksheet. You can designate a specific amount for withholding, like an extra $10 from your paychecks.
Step 5: Sign and file with your employer. Once you have reviewed your form and verified that the data you provided is correct, simply sign and date it and return it to your employer.You can change information on your W-4 as needed. When you complete your W-4, it does not go to the IRS but instead to your employer who will keep the form on file for at least four years. The IRS, however, reviews withholdings, so it is important to complete your W-4 form correctly, or you could end up with a higher tax bill. Remember, anytime there is a change in your filing status or income, it is a good idea to review your W4.
For more information on financial topics, you can email me at Charlestien.harris@southernpartners.org or call me at 662-624-5776. Until next week—Stay financially fit!