Did you receive a smaller refund than you expected this past tax season? Maybe you owed more than what you already paid. The IRS is reminding taxpayers that the earlier they check their withholding amounts, the easier it will be to have the right amount of tax withheld. So if either of the above scenarios apply to you, you may want to calculate and update your withholding amounts.
In addition to wages, income tax is usually also withheld from other income such as pensions, bonuses, commissions, and gambling winnings. Ideally, taxpayers should try to match their withholding with their tax liability. If enough tax isn’t withheld, the remaining amount will be due at the end of the year (along with any interest and penalties incurred). If too much tax is withheld, overpayments are refunded later in the year.
You should check your withholding amounts if:
- You receive a large refund or owe a large payment,
- You had personal/financial changes that could affect your tax liability (getting married, getting divorced, having a child, or buying a home), and
- Your tax liability changed due to new federal tax laws
Employees Should Check Their Withholding Amounts
The IRS Withholding Calculator can help calculate your correct federal withholding. You can also use the worksheets and tables in Publication 505.
How to Update Your Withholding Amounts
Events during the year can change your qualification for exemptions, adjustments, deductions, or credits you expect to claim on your return. When this happens, use the IRS withholding tools to complete your W-4 Form, and Employee’s Withholding Allowance Certificate, and submit the updated form to your employer. Taxpayers should submit a new W-4 Form within 10 days of a divorce, if currently filing under a married status, or any event that changes the number of withholding allowances allowed.
Other Things to Note
Taxpayers who purchased insurance through the Health Insurance Marketplace in 2015 should report changes in circumstances to the marketplace as they occur. Reporting changes in income or family size will help taxpayers avoid paying too much or too little in advance toward their premium tax credit. Inconsistent payments will affect the taxpayer’s refund amount or balance owed. For help with your ACA premium tax credit, visit www.irs/aca estimator tools.
Taxpayers might need to include the Additional Medicare Tax and/or the Net Investment Income Tax when calculating withholding amounts. Taxpayers can request that employers deduct an additional amount of tax from their wages by updating their W-4 Forms. If you still have further questions, contact your tax agent to map out your ideal tax plan.
