Posted by Larry Kenneth Hurt

When to Change the Withholding Tax

When to Change the Withholding Tax

In the United States tax system, individuals can withhold tax payments until April 15 of the following calendar year or use the Pay as You Earn (PAYE) approach, in which taxes are paid as estimates during the year before the fiscal term. The PAYE method is used by employers, who are legally required by the federal government to withhold a portion of their employees' income to pay taxes by deducting a portion from their regular wages.

To calculate the exact amount they are withholding, employers rely on the information that all new hires fill out on W-4 forms. If too many taxes are withheld, employees may receive refunds.

When to change your withholding tax

Some of these events can cause change. The following considerations govern the amount of taxes withheld:

  • If you are file for "married" or "single" rate on W-4

  • If you want to withhold additional funds

  • The number of allowances for which you are eligible for

Changes in your family's circumstances, such as the loss of a spouse or the birth of a child, can have an immediate impact on your tax situation. In these situations, it is worth changing the amount of tax withheld so that you do not need a larger tax account than necessary.

Are You Married?

If you are married by filing a joint tax return, your taxes may be affected in the following ways:

  • If your spouse earns an income, the total withholding tax on your home may increase.

  • If your spouse is not working, the total withholding will likely decrease.

However, there are times when separate filing makes sense.

Divorce and W-4.

Divorce can change your family income, but there is also the issue of child support, which has started to receive various tax treatments since 2019, due to Tax Cuts and Jobs Acts (TCJA) that was passed in 2017. Under the new tax paradigm, pension payments will no longer be tax-deductible for the payer, while beneficiaries will no longer have to report pensions as income.

Two Jobs or More?

According to the IRS, dual-income families and people who do more than one job are vulnerable to 5 withholding disparities. If you have two jobs, you can split your allowance between them, but you can't claim the same benefit for two. Also, losing a second job allows you to reduce the withholding of the remaining work or return to the previous holding plan.

Are There Kids In The Equation?

Giving birth to a child or adopting one immediately adds to your family's dependency and reduces your total tax burden to offset raising children's costs. However, when your kids get older and move out of the house, you'll need to readjust your withholdings.

Strong Increases In Non-Wage Income

The withholding tax should be adjusted to take into account any unusual income from stock dividends, interest income, side businesses, etc. If no more taxes are withheld during the year to reflect this additional income, the bill will be very high at the time of the tax return.

New Deductions

When you buy a home, you need to update the withholding tax to block the tax exemption. Of course, you can postpone this task until the end of the year, but you will lose opportunity costs. This applies to any large deductions or credits you may be entitled to in any given year, including dependent care expenses, education credits, and charitable donations.

Getting Your Withholding Right

The IRS provides useful withholding tax calculations on its website and provides spreadsheets for converting credits into withholding deductions. The site also offers tips for avoiding common mistakes. Although you cannot claim the same benefits as your spouse, you can share them as needed.

Bottom Line

People can walk for years without having to change their withholding status. But when life changes, it's worth taking the time to re-file your withholding. If you pay the government a lot during the year, you will be refunded. But if you pay too little, you might be surprised by a big bill.


Larry Kenneth Hurt
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