Besides wages, federal income tax is often withheld from other types of income, such as pensions, bonuses, commissions and gambling winnings. Ideally, taxpayers should try to match their withholding amount with their actual tax liability. If not enough tax is withheld, they will owe tax at the end of the year and may have to pay interest and a penalty. If too much tax is withheld, they will lose the use of that money until they get their refund.
Q: When should I take a look at the amount of federal income tax that is being withheld for me?
A: It is wise to check the tax that is being withheld from your income as early as possible in the calendar year so you can best determine the right amount to withhold for the remainder of the year. You should also check your withholding status:
· When you get a big tax refund, or find you have an unexpected balance due;
· Any time there are personal or financial changes that might affect your tax liability, such as getting married, getting divorced, having a child or buying a home;
· When there are changes in the federal tax law that might affect your tax liability.
Q: How can I check the amount of tax that is being withheld?
A: You can use the IRS “withholding calculator” on the IRS website at www.irs.gov/Individuals/IRS-Withholding-Calculator. This easy-to-use tool can help you figure out your federal income tax withholding so your employer can withhold the correct amount from your pay. This is particularly helpful if you’ve had too much or too little withheld in the past, your situation has changed, or you’ve started a new job.
You can also use the worksheets and tables in IRS Publication 505: Tax Withholding and Estimated Tax (www.irs.gov/pub/irs-pdf/p505.pdf), to see if the right amount of tax is being withheld for you.
Q: How can I change the amount of tax that is being withheld for me?
A: Events during the year may change according to your marital status or the exemptions, adjustments, deductions or credits you expect to claim on your return. When this happens, you may need to give your employer a new Form W-4, Employee’s Withholding Allowance Certificate (www.irs.gov/pub/irs-pdf/fw4.pdf), to change your withholding status or number of allowances.
Generally, you should give your employer a new Form W–4 within 10 days after either:
· A divorce, if you have been claiming married status; or
Any event that increases or decreases the number of withholding allowances you can claim, such as the birth or the adulthood and independence of a child.
Q: What else should I consider to make sure the correct amount of tax is being withheld for me?
A: If you bought 2015 coverage through the Health Insurance Marketplace, you should report any changes in your circumstances to the Marketplace when they happen. Reporting changes in income or family size will help you avoid getting too much or too little advance payment of the premium tax credit. Receiving too much or too little in advance can affect the amount of your refund or how much you may owe when you file your tax return. For help getting it right, see this change in the circumstances estimator at www.irs.gov/Affordable-Care-Act/Affordable-Care-Act-Estimator-Tools.
You also may need to include additional Medicare tax (see www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Questions-and-Answers-for-the-Additional-Medicare-Tax) and “net investment income tax” (see https://www.irs.gov/uac/Newsroom/Net-Investment-Income-Tax-FAQs) when figuring withholding and estimated tax. You may ask your employer to deduct and withhold an additional amount of income tax withholding from your wages on Form W-4 if you are affected by these taxes.
Q: Where can I get more information?
A: Find more information on this and other tax topics by visiting: www.irs.gov/Individuals.
The information for this “Law You Can Use” column was provided by the Internal Revenue Service. It was prepared by the Ohio State Bar Association. Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.