A majority of employers and employees are familiar with Federal Withholdings, which is a portion of the employee’s pay that the employer withholds and provides to the IRS. The withheld funds are then applied to the taxes the employee owes to the IRS come filing time, which means the employee does not have to save up the funds to pay their taxes or do so in full and all at once themselves. What not every employee or employer may know is that while there is a standard calculation of Federal Withholding, employees can also control how much is withheld per paycheck!
How can Employees control their Federal Withholding?
The standard calculation for Federal Withholding is based on multiplying taxable income with the number of pay periods a year, minus allowances. The employee can adjust if they need to have more or less federal tax money withheld per paycheck by either increasing or decreasing the amount. The adjustment should be based on tax owed, so if you received a large refund the previous year, that means you paid in too much, and if you owed a large amount, then you didn’t pay in enough. Here is how to correct it to pay in the appropriate amount of tax throughout the year:
Increasing: If you owed tax and want to pay more in throughout the year you can adjust your withholding to increase the amount. A few ways is to change your filing status on your W-4 to “Married, but withhold at higher Single rate,” or you can decrease the number of exemptions on your W-4.
Decreasing: If you received a large refund the previous year, you may want to decrease how much is withheld. You can do this by increasing your number of exemptions. Be very careful, this should only be done if you know that you are expecting a refund again in the current year. The IRS does require you to pay in the correct amount, and if you don’t pay in enough throughout the year, they can penalize you on your personal return.
When Do I Turn In the W-4?
Typically W-4 forms are filled out and provided to employers at the beginning of any new job, however you can turn in an updated document during the year. Typically updating a W-4 is done when there is a life status change such as marriage or a child.
Anything Else?
Typically W-4’s go into effect immediately, within the next pay period, however in the case the employer receives a lock in letter from the IRS, they will have to go by the standard withholding calculations.