Tax Withholding: Put more money in your pocket now or prevent tax bills later
It’s not too late to adjust your 2012 tax withholding to avoid big tax refunds or tax bills when you file your tax return next year. You should act soon to adjust your tax withholding to bring the taxes you pay closer to what you actually owe. In some cases, this will put more money in your paycheck.
Each year, millions of American workers have far more taxes withheld from their pay than is required, resulting in large refunds. They must wait for their tax return and refund to process before they can access their money. If they’ve tied major financial decisions to the receipt of their refund, they may face stress. This is especially true if they’re depending on their refund to arrive by a certain date.
Others wind up owing money on tax day. They may experience stress from having to add an unanticipated federal tax bill into their budget.
Here is some information to help bring the taxes you pay during the year closer to what you will actually owe when you file your tax return.
New Job. When you start a new job, your employer will ask you to complete Form W-4, Employee’s Withholding Allowance Certificate. Your employer will use this form to figure the amount of federal income tax to withhold from your paychecks. Be sure to complete Form W-4 accurately.
Life Event. You may want to change your Form W-4 when certain life events happen to you during the year. Examples of events in your life that can change the amount of taxes you owe include a change in your marital status, the birth of a child, and purchasing a home. Keep your Form W-4 up- to-date.
You can submit a new Form W–4 anytime you wish to change the number of your withholding allowances. However, if your life event results in the need to decrease your withholding allowances or changes your marital status from married to single you must give your employer a new Form W-4 within 10 days of that life event.
Form 1040-ES. If you are self-employed and expect to owe a thousand dollars or more in taxes for the year, then you normally must make estimated tax payments to pay your income tax, Social Security and Medicare taxes. You can use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to find out if you are required to pay estimated tax on a quarterly basis. Remember to make estimated payments to avoid owing taxes at tax time.
Publication 505, Tax Withholding and Estimated Tax, has information for employees and self-employed individuals, and also explains the rules in more detail. The forms and publication are available at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).