Money has been tight for a lot of people this year. With inflation, you may be finding it difficult to make ends meet. Instead of wishing that you made more money than you do, there are ways to increase income without working harder or getting a second job. You may just need to change your tax-withholding information, which can put more money in your pocket each month.
Your employer takes the required amount out of every paycheck for Social Security, health insurance, and tax withholding. When you were first employed there—and possibly every year afterward—you filled out a W4 form. It tells your employer how much money you want withheld for taxes for the year.
If you were not thinking about it—or not paying attention to the numbers—you may have told your employer to take out more money for taxes than necessary. The employer will take out the most money if you claim zero on your W-4. You must use the zero claim if you are a dependent who’s claimed on someone else’s taxes, such as your parents.
No More Personal Exemption
Before the Tax Cuts and Jobs Act of 2017, you would normally claim a personal exemption. LibertyTax says that the higher standard deduction has replaced the exemption. The same act just about doubled the deduction.When to Claim Zero Allowances
You can also claim zero allowances if you want a larger tax refund. Although it is one way to save money for a bigger expense, such as a vacation, Money.USNews mentions that it may not be the best choice, because it means giving the government use of your money for months—and not getting any interest for it.Another time to claim zero allowances is when you are working multiple jobs. If one of your jobs does not have much income and you are likely to have the other jobs cover your taxes for the year, then claim zero on that W-4.
Give Yourself a Raise
If you have claimed zero allowances in the past and want more money each paycheck, you can get more by claiming one allowance. It would be like getting a raise. Ideally, you do not want more money withdrawn from your paycheck than what is needed to cover your taxes. Kiplinger says that once you give the W-4 to your employer, they must start withholding the new amount on or after the 30th day of the month.There are also other occasions when you should change the number of withholding allowances on your W-4. According to TurboTax, they may include:
- Getting married or divorced
- Having a baby—or adopting one
- Get another job
- Your spouse gets a job
- You become unemployed—and rehired
- You get a raise or bonus.
- Your child turns 17.
- You have bought a new home.
- You paid off your student loans.
- You drastically change your pretax retirement savings in a 401(k) or deferred compensation plan.
The Underpayment Penalty
If you do not have enough taxes withheld or pay enough taxes, the Internal Revenue Service says you may have to pay a penalty fee, called the Underpayment of Estimated Tax by Individuals Penalty. You may be required to pay a fee even if you are owed a refund of taxes.Calculating Your Taxes to Fill Out a New W-4
Form W-4 went through some changes after the Tax Cuts and Jobs Act of 2017. If you have not filled one out recently, you may find that it is more complicated—but it will enable you to determine your taxes more accurately.If you want to know more precisely how much your taxes will be for the year, you can use the IRS’s Tax Withholding Estimator. To fill out the W-4, you will need your current tax return information and your spouse’s tax information. You can also get any questions answered you have about the Form W-4 withholding calculator.
Withholding Taxes From Your Social Security Payments
If you expect to make too much money and need to pay income taxes on your Social Security payments, you can have money withheld or get payments stopped. To do so, you will need to get Form W-4V from the IRS.When money needs to be withheld from your payments, you will have to provide a percentage amount. The IRS will not accept a flat dollar amount. The IRS only accepts certain payment percentages, which are 7, 10, 12, or 22 percent. The W-4V form can be downloaded as a PDF from the IRS website.
Choosing How Many Allowances to Claim
Knowing how many allowances to claim on a W-4 can be a little tricky. You do not want to pay too much or too little. TaxShark makes the following recommendations:- Claiming zero allowances—This is good if you are a dependent on someone else’s tax forms.
- Claiming one allowance—It will work well if you are single and have just one job. Also, claim one allowance if you are married and filing jointly, or if filing as head of household.
- Claiming two allowances—This is for singles with more than one job, or if you are married and want to split the allowances between spouses.
- Claiming three allowances—Claim three if you are married and have one child, or more than one child.
- Single with children—If you have one child, you should claim two allowances.
Who Qualifies for No Withholding Tax
You can also fill out the W-4 and ask that no withholding tax be taken out of your paycheck.It will be however, necessary to learn whether you qualify for it.
Doing something as simple as changing your W-4 may be all you need to do to improve your financial situation. Take advantage of this opportunity now by asking your employer for the form and enjoy the benefits soon.
The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
