Time for a Paycheck Checkup? Review Your Tax Withholding

National Payroll Week takes place in September and it’s a timely reminder that your paycheck can provide valuable insight into whether your federal tax withholding is on track. Taking a few minutes to review your withholding now can help you avoid an unexpected tax bill or other surprises when you file your return.

When Should You Review Your Tax Withholding?

Federal income tax is generally paid throughout the year as you earn income. For employees, federal income tax is typically withheld from each paycheck based on your earnings and the information you provide on Form W-4, Employee’s Withholding Certificate.

It’s a good idea to review your tax withholding periodically, particularly when you experience a major life or income change.

Changes that may affect your withholding include:

• Starting or leaving a job
• Working multiple jobs
• Getting married or divorced
• Having or adopting a child
• Experiencing a significant change in income
• Changes to your deductions or tax credits
• Changes in tax law

If too little tax is withheld throughout the year, you could face a larger tax bill when you file your return. If too much is withheld, you may receive a larger refund, but that also means you had less take-home pay throughout the year.

How to Check Your Tax Withholding

Not sure whether you’re withholding the right amount?

The IRS Tax Withholding Estimator is a free online tool that can help you determine whether you’re having too much or too little federal income tax withheld from your paycheck.

The estimator uses information such as your recent pay statements, income, deductions and tax credits to estimate your federal income tax withholding.

If an adjustment is needed, the estimator can help you determine how to complete a new Form W-4. Your completed Form W-4 should be given to your employer, not sent to the IRS.

What Can Affect Your Tax Withholding?

Your withholding is based in part on the information you provide to your employer, so changes in your personal or financial situation can affect whether the amount being withheld is appropriate.

For example, you may want to review your withholding after:

• A change in your salary or other income
• Starting a second job
• Getting married or divorced
• Adding a dependent
• Changing your deductions or credits

Tax law changes can also affect your tax situation, making a periodic review worthwhile.

A Paycheck Checkup Can Help Prevent Tax-Time Surprises

Reviewing your withholding doesn’t have to be complicated, and you don’t have to wait until tax season to do it.

A quick check now can help you determine whether your current withholding still makes sense based on your income and circumstances. It’s especially worth reviewing if you’ve experienced a significant change since you last completed your W-4.

For business owners, September is also a good time to review payroll processes and make sure employment taxes are being withheld, deposited and reported correctly.

Have Questions About Your Withholding?

If you’re unsure whether your withholding is appropriate or want to better understand how changes in your income or circumstances could affect your tax situation, the team at Anderson, Adkins & Company in Augusta, Georgia is here to help.

This information is provided for general educational purposes and should not be considered tax advice. Tax situations vary, and you should consult with your tax professional regarding your individual circumstances.