I've heard a few questions recently about how to calculate the number of exemptions you list on your federal income tax withholding. Withholding sounds complicated but it really isn't.
What is withholding and why do you care?
Withholding is the amount of taxes that are taken out of your paycheck every pay. This amount builds up, basically like a savings account, and when you calculate your taxes at the end of the year, the amount of your withholding is applied to the amount that is due. If you withhold too much, you will get a tax refund. If you didn't withhold enough, then you will owe additional taxes.
How does the finance department know how much to withhold?
The finance department uses your Form W-4, Employee's Withholding Allowance Certificate, to figure how much they should hold out for taxes. You use the W-4 to give instructions on how to calculate the amount withheld. The accuracy of your withholding is based upon what you put on the W-4 form and so the information on the W-4 helps to control whether you get a tax refund or if you additional taxes when you calculate your return.
How you you know what to put on your W-4?
First, you can use the IRS Withholding Calculator. This calculator asks a series of questions and estimates what you should probably put on your W-4 form. If you are confused, this calculator is a great place to start. Using the results from the withholding calculator to fill out your W-4 will most likely result in getting close to the right amount of tax withheld.
Issues that will impact your withholding include:
- entering or leaving a tax-free combat zone
- beginning or ending a second (or third!) job
- getting married
- having a baby
- buying or selling a house
- moving out of a house that you own
How do I change my W-4?
Changing your federal withholding is so simple, and you can do it as often as necessary. Log into your MyPay account and click on the Federal Withholding link. A long page will come up, explaining withholding, and at the bottom there is a form that looks like this:
Fill in the appropriate blanks, hit Save, and you've done it. The effective date of changes will be listed on the screen once your changes have been saved.
What if I'm not in the military, need to change my withholding for a second job, or my spouse needs to change his or her withholding?
As your manager or human resources department for a new W-4 form, complete it, and turn it in to the right person. Check on your next paycheck to be sure that the changes have been made.
Keeping your W-4 up to date will mean fewer surprises when you file your income tax return. It should only take a few minute to do, and you can update it regularly without a lot of fuss.
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