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Money Matters
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Are you giving the IRS more of your paycheck then you should?

21 Sep 2017 by: Kim Benson 

While most W-2 employees are not focused on taxes in the fall, we think they should be.  If you aren’t withholding enough taxes from your paycheck, you could be subject to unexpected underpayment penalties next April. Alternatively, if you withhold too much from your paycheck, you may receive a large refund, which means you’ve missed out on interest, investment gains, or the opportunity to spend the money that the government has kindly held for you.  So, what can you do to make sure you are on the right track with taxes?  Review your withholdings!

If you are a W-2 employee, you should have a form W-4 on file with your employer.  This will indicate how much federal and state taxes you have elected to withhold from your paycheck.  You can change these withholdings as often as you’d like by submitting a new W-4.  We suggest reviewing withholdings about 3 times per year and making adjustments, if appropriate. Your withholding amounts pay your tax liability to the IRS evenly throughout the calendar year based on the amount of income you earn.  In other words, the IRS likes to get paid when you get paid.

There are a few ways you can review and adjust your withholdings.  There are online calculators from the IRS or private companies, such as Intuit’s Turbo Tax, to help you calculate your withholding based on your specific situation.  Please note that if you have any large one-time taxable events such as sale of company stock or large charitable contribution, we suggest calculating the taxes on these items in the quarter in which they occur, and submitting an estimated tax payment to the IRS.  You may need assistance from a tax professional or CPA.

We generally suggest reviewing and adjusting your tax withholdings in January for the new year, then again in June to make any mid-year corrections, and finally in October for any year-end adjustments.  This way, you can see how much has been withheld compared to the liability you think you will owe and adjust accordingly.  You can also use your previous year’s tax return as reference to see if your tax liability or your financial situation has changed significantly, and then use that as a basis to make any withholding changes.  Everyone’s tax situation is different and changes over time; this article merely serves as a guideline to help you adjust your withholding.  You should work with a tax professional or CPA if your situation is more complex or if you are a 1099 employee.




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