In years past, the IRS has encouraged taxpayers to double-check their form W-4s to ensure that they’re paying the right amount in taxes—often to no avail.
Even if you haven’t suffered the repercussions of an out-of-date W-4, here are a few steps you can take to make sure you don’t have an unexpectedly high tax bill come April 16th.
W-4: What You Need to Know
The form W-4 is essentially a one-stop document that details the amount of income that you owe as taxes. This amount reflects impacts by anything from your current income to the number of children or ancillary jobs you have, so filling out the W-4 entails strict attention to detail—especially when the tax code changes slightly every year. For this reason, it’s a good idea to update your W-4 at the beginning of every tax year to prevent unnecessary fines or inquiries.
It’s also worth noting that failing to pay the full tax amount you owe will usually result in some form of penalty. To avoid these penalties, make sure you pay 100 percent of the prior year’s tax bill, stay above 90 percent of your yearly tax liability on the form W-4 itself, and try not to owe more than $1,000 in taxes at the end of the season. If you don’t meet one or more of these criteria, you will undoubtedly face a fine.
Further Reading: Withholding Updates – A New Form W4 and a New IRS Withholding Tool
Who Should Check?
Ideally, everyone who filled out a W-4 last year should double-check its accuracy again this year. Between shifting tax codes, minor life events or changes, and income bumps, your W-4 is about as dynamic as your résumé. However, if you’re strapped for time and need a hard-and-fast rule, you should absolutely update your W-4 if you fit into one of the following categories:
- You have children and used to claim the Child Tax Credit
- You had a child since last updating your W-4
- You itemize deductions
- You either paid or received a large sum on your last return
- You are part of a two-income family
- You worked more than one job last year
- You haven’t updated your W-4 in two or more years
The Child Tax Credit has changed recently, so updating your W-4 if you have children is important. Similarly, having two sources of income in your family, working more than one job, or having not updated your W-4 for more than a couple of years are all reason enough to give your paycheck a checkup.
W-4 Solutions
Naturally, the best thing you can do for your W-4’s continued relevance is to keep updating it as major life events occur; for example, when you start a second job, have a child, or move, adjusting your W-4 to fit should be part of your process.
The mere act of discussing taxes inspires plenty of anxiety already—don’t let an out-of-date W-4 add to your stress this season. For more information on how you can keep your W-4s squeaky clean and totally compliant, call Abacus Payroll at (856) 667-6225 today.