Congratulations! You’re starting a new job!
In that whirlwind of your first few days, you’ll meet many new faces, learn plenty of new rules and processes, and fill out quite a bit of paperwork as well.
One of the most important forms you’ll be given to complete is the IRS’s W-4. Simply put, the W4 tells your employer how much of your paycheck to withhold in taxes. But it isn’t always simple to do. Here are some do’s and don’ts of your W4:
First off, do the math before you start filling out the forms. Make sure you add up every dollar you expect to earn this year. Also be sure to use the personal allowances worksheet to figure out how many allowances to claim.
Secondly, remember to plan for big life events. If you’re getting married or going to have a child this year, those life changes will affect the deductions you claim on your W-4. A divorce or a second job also fall into this category. Contact your human resources department and submit a new W4 form to your employer as these events happen, at any time of year. The changes should go into place by your next paycheck.
Also, you should revisit your W4 if you receive a hefty tax return. Your withholdings are more or less interest-free loans to the government, and if you’re getting a large chunk of change at the end of the year, you could be doing smarter things with that cash. If you choose a lower withholding, your paycheck will be higher and you can put that extra money to work in interest earning investments.
And Not to Do…
Do not misrepresent yourself on your W4. Specifically avoid claiming you’re exempt unless you are. When you file as exempt on your W4, you do not make any tax payments throughout the year through your employer. If you claim exemption but then earn taxable money, you’ll end up owing the IRS money in April.
Also, don’t mistake yourself as head of household. To qualify for head of household status, the IRS says you must be unmarried, pay more than half of all household costs, and have a qualifying child or dependant living in the home for more than half the year. If you do fall into that category, you’ll have lower taxable income and greater potential for a refund. If you don’t, you could face a penalty.
If you have any questions about filling out your W4 form, your human resources department should be able to get you on the right track. It’s better to ask now than owe down the road.