A New Job? – Time to Reevaluate Your Withholding

If you are starting a new job, you will need to complete a Form W-4 (Employee’s Withholding Allowance Certificate) for your new employer. This is the perfect time to reevaluate your withholding allowance choices. Each employer needs to maintain a completed W-4 Form for each employee indicating how much to withhold from the employees’ wages.

Did you have a large Federal Income Tax Refund last year? If so, you allowed the Internal Revenue Service (IRS) to use your money interest free. Starting a new job provides you an opportunity to adjust your withholding so you will have more money in your pocket rather than the large refund at income tax time. By increasing your withholding allowances, less income tax will be withheld thereby giving you more money in your paycheck. If you are married but the only wage earner, the calculation is relatively straight forward – claim an exemption for every member of your household. For example, if you and your wife have two children you would claim four exceptions; one each for you and your wife and two for your children.  If your wife also is employed, the calculation is a little more complicated. The IRS says withholding will be most accurate for two-paycheck families when all eligible allowances are claimed on the W-4 of the spouse with the larger income; the other spouse should then claim zero allowances.

If you owed money on your income tax return, adjusting your withholding should prevent this next income tax filing time. Reducing the number of your withholding allowances will increase the federal income tax withheld thereby avoiding a tax bill at income tax time. Multiple jobs between husband and wife present more complications when figuring the correct number of exemptions to claim on the W-4 Form. The second page of the W-4 contains a work sheet to assist in calculating the appropriate number of exemptions to claim under this circumstance. Completing this might take a moment or two but it will be well worth your efforts to avoid owing additional income taxes or allowing your money to be used interest free!