Now that we are in a new year, you are probably starting to think about taxes. Now is a great time to look at your financial situation and determine if you need to fill out a new W-4. Basically your W-4 helps your employer figure out how much to withhold from each paycheck. While it is a good idea to evaluate your withholding allowance on a regular basis, make sure you think about changing your W-4 if you fall into any of the following categories.
Married/Divorced/Had a Child
Generally the amount withheld depends on the number of dependents that you will claim. If you have had changes in your situation since you filled out your form, it might be a good idea to take a second look. Marriages, divorces and children are all great reasons to fill out a new form. Remember that when your children move out and will not be claimed on your taxes any more, you will also have to fill out a new form.
Huge Refund or Money Owed
When you do your taxes you can see if you have enough or too much money being taken out of each check. If you have a huge refund you could get more money each month that you could use to pay off debts or invest and earn interest on. If you owe too much money you can end up paying a tax penalty, so make sure that you are getting enough withheld from every check.
If you have recently become self employed you may also want to redo your W-4. If you are earning money other than your paycheck you will owe taxes on it. If you owe too much you will get that nasty penalty. Make sure that you either pay quarterly taxes on this income or that you have extra money taken out of each check.
If you haven’t thought about your W-4 in the last couple years, it is probably time to fill out a new one. Talk with your employer and get one of these simple forms. It will come with a worksheet that you can fill out that will give you a better idea of your tax situation.