Vincenza Vicari-Bentley, AFC
Empowering Financial Wellness Program Coordinator
If your goal is to have just the right amount of withholdings so that you end up getting a very small refund or writing a very small check to Uncle Sam, then the accuracy of your W-4 is critical. The W-4 form essentially tells your employer how much you want withheld from each paycheck to go towards your tax bill. The 2017 Tax Cuts and Jobs Act changed a lot of tax rules, including doing away with personal exemptions on the W-4 form.
This new form, introduced in 2020, still asks for basic personal information but no longer asks you for a number of allowances. In the past, the more withholding allowances you claimed the less your employer would withhold from your paychecks. Now, if you would like to lower your tax withholding, you must claim dependents or use a deductions worksheet. Also, if you had any major life changes (marriage, divorce, kids, gig work, job changes etc.) or you just want to adjust your withholdings at your current job, you may want to fill out the revised W-4.
I’m not a huge fan of giving the government a free loan and then having to wait all year to get that money back. I’m also not happy if I have to write Uncle Sam a large check! However, some like having more withheld from their paycheck because they like receiving a refund check plus it automatically forces them to save money all year.
Personal finance is personal so choose what’s best for your situation but reviewing the current W-4 you have on file with your employer(s) is a simple way to make sure you’re not getting any surprises come tax time! By the way, you’re allowed to give your employer a revised W-4 at any time during the year.
Pro Tip: If you need more help calculating the right withholding for your situation you can visit www.irs.gov and use their on-line W-4 calculator. Be prepared (and patient) and have your recent paystubs because it asks you for a lot of specific information in order to have the calculations be accurate.
Knowing you have the right amount of withholding is just one less thing you have to worry about when it comes to filing your taxes every year!
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