A new year brings new seasons. Winters, spring, summer, fall, and taxes. When tax season approaches it brings with it a host of questions and concerns. Will I owe money? Am I filing correctly? Will I be audited? Do I have to pay? One key component to ensuring that you are in the best position possible for tax season is to be sure that your W-4 is completed correctly.
What is a W-4?
We're so glad you asked. A W-4 is a document that informs your employer of how much money you would like have withheld from your paycheck for your federal, state, and local taxes. Depending on your status, you may be entitled to certain exemptions. For example, students are exempt from Federal Insurance Contributions Act (FICA) taxes like Medicare and Social Security tax. When you are exempt from a tax withholding you are not obligate do make regular contributions, therefore, your employer will not withhold money from your paycheck for those taxes.
CAUTION! Honesty is always the best policy. Particularly when it comes to your taxes. Claiming an exemption from tax withholding that you are not actually eligible for may result in a balance when you file your tax return. Which brings us to the next big question;
How Do I Know When I Am Exempt From A Withholding?
There are a number of way to know if you are exempt, however, we'll narrow it down to the top three.
1. If you earn less than $6,300.
2. If you owed no taxes last year.
3. If no one, such as a parent, will claim you as a dependent.
What Do I Do If I'm Not Exempt?
If you are not exempt from withholding, it is important for you to determine how many withholding allowances you are eligible to claim. Withholding allowances help to determine how much money will be withheld from your pay for taxes. The more allowances you claim, the less money your employer will withhold for taxes. Therefore, if you claim zero allowances you will have the maximum amount of taxes withheld from your pay. You will have less money withheld for every additional allowance you claim.
CAUTION! Claiming more allowances than you are eligible for may result in you owing a balance when you file your taxes.
So, How Many Allowances Should I Claim?
Great question! The answer to this question depends on your current status. Students and singles typically claim between zero and two allowances. Married couples and families with children claim additional allowances for each dependent family member that they support financially. Selecting the appropriate tax withholding on your W-4 will certainly make filing your taxes less painful. Filing taxes, like managing your credit, is a task that can be done independently but is frequently outsourced. When in doubt, it is always wise to seek the safe, secure, and skillful assistance of a professional.