I hate to be the bearer of bad news. Sometimes I have to tell a client they owe additional tax with their tax return. Of course, every situation is different, but many times, withholding from a paycheck is the culprit. Withholding is generally based on tables published by the IRS and state department of revenue, and every time you start a new job, your new employer will require you to fill out a W-4, along with other forms, to get you set up in the payroll system.


Unfortunately, the W-4 is a daunting form, and generally you can’t find anyone to help you fill it out. The good news is that once you fill out a W-4, you’re not required to file a new one unless you want to. If you’re happy with your withholding, leave the current form in effect and you should be fine. And if your tax situation is simple, filling out the W-4 is simple. But this only applies if you are single, or your spouse doesn’t work, you have no dependents, you claim the standard deduction, and you have no other income.


If that’s not you, you’re going to need some additional information to accurately complete the W-4. You’re going to need information on your spouse’s income, your dependents, other income, tax credits and deductions you expect to claim. That means you probably won’t be able to turn the form in right away on your first day of work.


The biggest issue I see is inadequate withholding where you have multiple jobs, or your spouse also works outside the home. The W-4 form has a section where you can adjust your withholding for this situation, but remember, if you have multiple jobs, you should make sure you complete a new W-4 for all jobs, and if your spouse works, their W-4 will probably need to be updated as well.


There is also an adjustment section to account for certain tax credits and deductions. Be sure to read the instructions carefully because errors can cause inaccurate withholding despite all your efforts.


The IRS has an online tax withholding estimator, which will help you with the more complex situations. You can adjust your withholding to cover income from interest, dividends, or distributions from your retirement account. You can even adjust your withholding to account for a side job where there is no withholding.


All this sounds great, maybe even easy, but the easy part is making a mistake. My recommendation is to fill out the W-4 as best you can, and then look at your withholding and make sure it’s going to give you the result you expect. It’s fairly simple to project out your income for the year and estimate the total amount of withholding to see if your withholding is going to cover your tax liability. Nothing is worse than an unexpected result on your tax return. Now is the time to review your withholding so you don’t get an unexpected result next year.


If you need help determining if your withholding is adequate, please contact our office after May 1 and we will work with you to help you adjust your withholding. As always, I am looking for article ideas that you would like me to cover. If you have an idea for a future article, or just have a topic you would like more information on, please send an email to info@fawandassociates.com.