Last updated on May 16th, 2017 at 02:40 pm
Whether you are starting a new job or had some life changes that may affect your tax status, selecting the appropriate number of exemptions to claim on your W4 is essential. It can be confusing. Here’s how to fill out those new job tax forms.
A rule of thumb to remember is the higher number of exemptions you claim, less taxes will be withheld from your paycheck. You should beware of this tactic. If your goal is to have as little taxes taken out of your paycheck as possible, you need to be cautious that you do not end up owing a substantial amount of money at the end of the year!
While much of the data on the W4 is standard identification information such as your name and address and social security number, you are also obligated to fill in the “allowances” listed on line five. This is the tricky part. Entering an accurate number of allowances ensures that you will maximize your paychecks without avoiding a tax bill.
You may be tempted to claim zero exemptions so that the maximum amount is deducted from each paycheck. The result of this decision is that you ultimately receive a bigger tax refund, but if you are looking for a way to save money, allowing the government to hold your tax dollars interest free may not be the most effective method.
Instead of overpaying and letting the IRS hold your money throughout the year, you could claim the correct number of exemptions and invest the extra amount that appears in your regular paycheck – with the potential of enjoying a greater return over time.
As you develop your W4 allowances strategy, remember that it should change as with changes in your life! Keep it updated in the event that you get married, divorced, become head of household or have a child. As your family continues to grow, the information on the W4 should be kept current.
Just remember that both under and over withholding tax dollars can have drawbacks. If you try to manipulate your W4 form in order to control how much is withheld each pay period, you need to be very careful and aware of any future tax implications as you increase or decrease your net income.
For more detailed information about how to fill out new job tax forms, other tax tips and ideas, or to discuss your situation, please email me at Kenneth.Bagner@sobel-cpa.com.
Ken Bagner is a member of Sobel & Co. LLC. He is a member of the American Institute of Certified Public Accountants and the New Jersey Society of Certified Public Accountants. Plymouth Rock Assurance in NJ is proud to partner with NJCPA to bring you valuable tips for about your financial health. Qualified members of the NJSCPA can receive a discount on their car insurance through Plymouth Rock Assurance New Jersey.