You may be wondering if you should change your paycheck withholding amount in order to make ends meet. You may be wondering if you need to change it since you started a new job, just got married or had your first child. There are many different reasons to change your paycheck withholdings. It is important to realize that the withholdings do help you to not pay taxes at the end of the year. Here are five times you may consider changing your withholdings.
1. Starting a New Job
You started a new job. If you are making significantly more money, you may not want to claim as many exemptions. This depends on your family size. Generally if you are single you should continue to claim one. This number ensures that they withhold enough so that you do not owe at the end of the year.
2. You Owed Taxes This Year
You should consider your tax withholdings if you owe taxes this year. There is nothing as disappointing as having to fork out money to the IRS at the beginning of the year. You can adjust your withholdings so that the correct amount is withheld. You can even request that extra money be withheld each pay period.
3. You Received a Big Refund
If you received a large refund this year you should adjust your withholdings as well. Many people mistakenly look at the refund as an easy way to save money. You are essentially loaning the government and not receiving any interest on it every year. You can exercise self-discipline or have the money automatically transferred to a savings account. Additionally if you qualify for the earned income tax credit you can have portion of that paid to you throughout the year. You will need to talk to your human resources department.
4. You Started Your Own Business or Freelance
If you have just started your own business or you freelance on the side. You can often save yourself the hassle of paying your taxes quarterly by increasing the amount withheld from each of your regular paychecks. If you are primarily a freelancer or your freelance work brings in more than your normal job, you may consider beginning to file self-employment tax payments quarterly to avoid the penalty.
5. Any Major Life Event
Any time that you have a life-changing event you should adjust your withholdings. These events include getting married or divorced, having a child or the death of an immediate member of your family. You can change your withholdings at any time.
6. Use the IRS's Withholding Calculator
If you are unsure of what to withhold you should visit the withholding calculator at www.irs.gov. The calculator will have you enter your income, tax withholdings, and other information. The calculator will then tell you how much you need to have withheld. This tool can take the stress of estimating out. Additionally you can go back through the year to make sure you are still on track.