Question: How can I be certain that I’m having enough tax withheld from my paycheck?
Answer: Now that we are in November, it’s a good time to take a look at your year-to-date paychecks and properly estimate your tax bill for the year. This way you’ll know if you are in a safe withholding range and you’ll still have time to make adjustments if necessary. If an insufficient amount of taxes is withheld, you could end up owing a large and unexpected amount when you file your tax return. You may also get hit with penalties and interest.
Choosing the correct withholding amount for your salary or wages is a matter of completing Form W-4 worksheets, providing an updated
Form W-4 when your circumstances change, and perhaps becoming familiar with IRS Publication 919, which deals with withholding.
Two factors determine the amount of income tax your employer withholds from your regular pay: the amount you earn, and the information regarding filing status and withholding allowances that you provide your employer on Form W-4. If you accurately complete all Form W-4 worksheets and you do not have significant non-wage income — like dividends, interest, capital gains, rental income, etc. — it is likely your employer will withhold an amount close to the tax you owe on your return. In the following cases, however, accurate completion of the Form W-4 worksheets alone will not guarantee that you will have the correct amount of tax withheld:
- If you are married and both spouses work
- If you are working more than one job
- If you have nonwage income, such as dividends, interest, long-term capital gains, rental income, unemployment compensation, self-employment income, and or alimony
- If you will owe other taxes on your return, such as self-employment tax or household employment tax
- If your withholding is based on outdated W-4 information for a substantial part of the year – examples would be you’ve gotten married, had a change in number of dependents, gotten divorced, experienced income fluctuations, etc.
Get a copy of IRS Publication 919 to ensure you are on the right track with your tax withholding. It can help you compare the total tax to be withheld for the year to the tax you anticipate owing on your return. It can also help you determine any additional amount you may need to withhold from each paycheck to avoid owing taxes when you file your return. Alternatively, it may help you identify if you are having too much tax withheld.