Did You End Up Owing Taxes, Or Getting a Big Refund? Maybe You Need to Adjust Your W-4
As a W-2 employee whose income comes largely from the wages you receive from your employer, there is a good chance that after you file your tax return each year, you receive a refund from the government. If the refund that you receive is notably generous – or if it turns out that you owe the Internal Revenue Service money – this is a reflection of the incorrect amount of taxes being withheld from your paycheck. Though your natural reaction may be to blame your employer for this, in all likelihood the error is a result of you providing incorrect information when you filled out your W-4, the form that advises your payroll department about how much withholding they should take out on your behalf.
Though some people think it’s a great thing to be on the receiving end of a big refund, the truth is that the money that you’re getting isn’t some kind of a gift from Uncle Sam – it’s your money, that you essentially loaned the government interest free over the course of the year. As nice as it may be to be on the receiving end of a big check, it makes a good deal more sense to have your money working for you in your own bank instead of working for the government and you getting no benefit, so you need to ask your employer for a blank W-4 form and fill it out correctly.
When people fill out their W-4, they tend to think that it is a straightforward form, but it is not as easy as you think. Any other income that you may have, including other jobs, itemized deductions, tax credits and tax already withheld needs to be taken into account in order to get an accurate number.
The IRS provides an online calculator for figuring out the correct information for your W-4. In order to make sure that you have everything you need, make sure that you have a copy of your most recent pay stub, as well as your spouse’s if you file jointly. You should also have your most recent income ax return. Though the information that is provided by the calculator is only a rough estimate, it is likely to be much more accurate then what you are able to obtain by guessing, and once you have gone through the process you will be able to download a fresh form to fill in and provide to your Human Resources Department or Payroll Department.
If your tax situation is complicated by additional jobs, a dual-income household, income outside of a W-2 or some other complication, or if you do not find the online calculator helpful or are uncomfortable with the technology, it is suggested that you seek help from an accounting professional to determine the right amount of withholding, both for federal taxes and for state taxes.
It is strongly suggested that after you have corrected the W-4 information that you have on file with your employer, you take the time to ensure that the correct amount of taxes are being withheld. There are so many situations that can make a significant difference in the amount that should be taken out – including having multiple jobs, being self-employed as well as salaried, or having a spouse that is self-employed – that you want to make sure that the proper amount is being taken out. An experienced professional will provide you with the most accurate information.