It can be a dreadful feeling learning that you unexpectedly owe the IRS money after filing your last federal tax return – especially if it's a significant amount. To increase your chances that this doesn't happen again, work with your tax advisor to determine if you need to adjust your withholding amount.
(Note, that this is also the case if you received a larger tax refund than you expected. You don't want to give the federal government a tax-free loan of your money.)
Taxpayers should periodically review their tax situations and adjust withholding, if appropriate. The IRS has a withholding calculator to assist you in conducting a paycheck checkup.
The calculator reflects tax law changes in areas such as available itemized deductions, the child credit, the dependent credit and the repeal of dependent exemptions. It can be accessed here.
In addition to tax law changes, the IRS recommends that you perform a checkup if you:
- Adjusted your withholding last year, especially in the middle or later part of the year,
- Owed additional tax when you filed your last federal tax return,
- Received a refund that was smaller or larger than expected,
- Got married or divorced,
- Had a child or adopted one,
- Purchased a home, or
- Had changes in income.
To modify your withholding at any time during the year, simply submit a new Form W-4 to your employer. Changes typically go into effect several weeks after a new Form W-4 is submitted. (Estimated tax payments can be adjusted each time you make an estimated payment to the IRS.)
