5 Tax Withholding Considerations

5 Things to Consider When Filling Out a New W-4

Whether you’re starting a new job or filling out a new W-4 to adjust your tax withholding for 2018, there are some things to keep in mind.

When you’re filling out your W-4, remember that your employer will withhold more income tax if you’re single with no dependents, than if you’re single with one or more dependents or married. You and your dependents each represent an allowance, and the more allowances you have, the less you’ll pay in taxes. The goal is to get your W-4 allowances just right so that you don’t owe anything come tax season.

Consider Your Last Tax Return

Did you owe the IRS money?

You might have claimed too many allowances on your last W-4. If you end up owing the IRS money, then you have to scramble to come up with it. You might even be slapped with an underpayment penalty.

Did you get back a significant refund?

You might not have claimed all your allowances. You’re not required to claim all your allowances, but paying more than you need to during the year is like giving the IRS an interest-free loan.

If you like to get a large refund back, consider claiming all of your allowances, then putting your extra take-home pay into a savings account so you earn some interest on it.

Consider Whether You Expect Any 1099-MISC Forms

If you also do work on the side and expect to receive a 1099-MISC form, you can either send in estimated tax payments throughout the year, or you can claim fewer allowances on your main job’s W-4. More money will be taken from your regular paycheck, but you won’t have to worry about owing much at the end of the year.

Consider Any Life Changes Over the Past Year

If you’ve had any life changes over the past year, think about how that might affect your tax withholding.

Did You Get a Second Job?

If you do work on the side, run a business from home, or work a second part-time or full-time job, you might have moved up a tax bracket. You might want to adjust your W-4 to make sure enough taxes are being withheld.

Did Your Spouse Get a Job or Change Jobs?

If your spouse got a job or a new job and is making more money, that could also put you in a new tax bracket. Sit down with your spouse and figure out your allowances based on your combined income. Then, you can decide if you want one spouse to claim all your allowances or if you want to split them.

Were You Unemployed During the Year?

If you were unemployed at any point during the year, you may have had too much money withheld from your paychecks. You can readjust your W-4 to account for that.

Did You Get Married (or Divorced)?

Whether you got married or divorced, your tax bracket probably changed (especially if you both work). If you got married and are filing jointly, you’ll qualify for a lower tax rate and other deductions. If you got divorced, you’ll go back to a filing status of single, which is a higher rate.

Did you Have or Adopt a Baby?

If you had a baby or adopted a baby, you’ll be able to claim an additional allowance. You might also qualify for the child tax credit, childcare tax credit, and other tax credits, which could allow you to reduce your tax withholding even more. If you don’t adjust your allowances after having a baby, you’ll probably end up with a larger refund than expected.

Consider Your Spouse’s Income

If your spouse’s income is significant, consider checking “Married, but withhold at higher Single rate” on your W-4. Doing this will make sure that you’re withholding enough taxes from your paycheck.

Determine Which Worksheet(s) You Need to Complete

There are several worksheets included with a W-4, so how do you know which ones to fill out?

Start with the Personal Allowances Worksheet. If you’re unmarried, only have one job, don’t have any dependents, and plan on taking the standard deduction, you’re done! Claim one allowance for yourself and a second one because you’re single with only one job. Fill out your information, check “single”, enter “2” on line 5, sign the form, and turn it in.

If you plan on itemizing your deductions or claiming certain credits or income adjustments, fill out the Deductions and Adjustments Worksheet.

If you and your spouse both work, or if you’re single with multiple jobs, fill out the Two-Earners/Multiple Jobs Worksheet.

Don’t worry if all those worksheets sound too complicated! The IRS has created a tax withholding calculator for you to use, instead.