Taxes and Your Paycheck
KEY TERMS TO KNOW
UNCLE SAM - The man who wants YOU to pay him money. He calls it tax!
WITHHOLDING - If you are an employee, this is the amount your employer keeps from your paychecks and remits to the IRS on your behalf.
W-4 (See one HERE) - The IRS form used by employees to calculate and approve how many allowances they are claiming.
ALLOWANCES - The number of these you claim on your W-4 determines how much tax will be withheld from your paychecks. The higher the number of allowances, the less tax your employer will withhold. The lower the number of allowances, the more tax your employer will withhold.
PAY NOW OR PAY LATER
As yet another tax season comes to a close on April 18th (Yes, historically it's April 15th, but thanks to Emancipation Day this year Uncle Sam graced us with a few more days. Thanks, Unc.), you may still be wondering why you owe the IRS money! You had taxes withheld from your paychecks all year, but somehow the IRS wants more of your money. The most simple answer to this problem for those who live a relatively simple tax life is to increase the amount of taxes your employer holds out of your paycheck.
There are typically two schools of thought on this issue. Some are okay with cutting the government a check at the end of the year. They figure why give the government a free loan throughout the year. Let me keep my money now, and I will pay what I actually owe later. You could be subject to a penalty if you owe too much. On the other hand, there are some who would rather receive a check FROM the government at the end of the year. Let me pay my taxes now, and I will get a refund for any over payment later. Which would you prefer?
If you prefer the latter, you will want to have your employer withhold more taxes up front throughout the year if you aren't already receive a refund from Uncle Sam. To do this, you will need to change your allowances on your W-4. Remember, the lower the number of allowances you claim, the higher amount of tax will be withheld from your paychecks. If you aren't sure how many allowances you are currently claiming, just ask your HR department for a copy of your most recent W-4.
THE KEY TAKE-AWAY
You have the right to change the number of allowances you claim at any time throughout the year. Just simply fill out a new W-4 and turn it into your HR department. To figure out how changing your allowances will affect your paycheck, grab your most recent pay stub and income tax return if readily available then click HERE.