Whether you get a physical paycheck or direct deposit, many people pay little attention to their tax withholdings. However, you should monitor this because it can change the amount of your refund or payment to the IRS. Knowing what’s being withheld can also help with tax preparation. Here’s what to keep in mind when reviewing your pay stubs.
Occasionally, Congress passes laws that affect tax withholdings. A recent example is the Tax Cuts and Jobs Act that impacted the refunds of many U.S. taxpayers in 2017. Even as The Child Tax Credit and Standard Deduction increased, other tax breaks were eliminated. Checking your withholdings lets you know if you need to adjust for these changes to the law.
Changes in Income & Household
If your salary or household income increases, you could be in a new tax bracket. Without the right withholding for your paycheck, you may have to cover the difference when filing taxes. If you added a second job, you can also split the withholdings between the two by filling out separate W-4s or using one form for withholdings from a single paycheck. If your spouse starts a new job and you are filing jointly, you only need to fill out one W-4 form. Also, your allowances can change when you have kids, or if you have adult children who are no longer dependents. Marriage and divorce can also change your allowances.
Change Your Withholdings
This can be confusing and may seem like a guessing game, but an accountant can help you with all facets of tax planning. If you need to change your withholdings, ask your employer for a new W-4 so you can increase or decrease the amount. If you haven’t been withholding enough, you can make an estimated payment to the IRS to stay ahead of the game with tax preparation.
You can eliminate much of the guesswork and confusion associated with tax withholdings by working with a trusted CPA firm like Bergamo Tax & Financial Solutions in Watertown, CT. They’ve also helped the surrounding areas of Middlebury, Waterbury, and Litchfield with all their tax and accounting issues. Businesses and individuals have benefited from their expert advice on tax preparation and estate planning, as well as daily financial tasks such as bill paying and checkbook balancing. Schedule a consultation by calling (860) 274-1655, or visit their website to learn more about their services.