Some financial tasks can be taken care of when life slows
down, and when you can give financial matters full attention.
Filing a new tax withholding form or W-4 Form, however, is not
one of them.
The best time to file a new tax withholding form with your
employer is precisely when your life is in upheaval -- you're
getting married or divorced, buying a house and moving into it,
or even bringing a new baby home from the hospital. The bigger
the change in your life, the more important it is to make sure
you're having the right amount of income tax withheld from your
If you experienced any of these events in your life recently, it
may be time for you to check your withholding levels and file a
new Form W-4, if necessary:
You get married.
Getting married changes your tax status -- even if you don't file
a joint return. If one spouse makes most of the money, or if one
spouse doesn't work, your total tax between the two of you may go
down. In that case, you'll probably want to file Form W-4 as
married, so your employer withholds less income tax.
Watch out -- if you both work and earn similar amounts, your
total tax may stay the same or even be higher. You may need to
select married, but withhold at higher single rate on your Form
You may also want to claim a withholding allowance for your
spouse to have the right amount of tax withheld.
You get divorced.
The end of a marriage can totally upend your tax situation.
You're filing on your own now. You may or may not be claiming the
kids as dependents on your return, or taking a credit based on
them or their expenses. You may pay alimony, which is deductible,
or child support, which isn't. When you get a divorce, be sure to
re-evaluate your tax situation for your new situation.
You bring home a baby.
The IRS suggests that you claim one withholding allowance on your
tax withholding form for each dependent, such as a new baby,
adopted child, or even a parent you support, or any other
The number of allowances you should claim is not always the
same as the number of people living in your house. You may want
to take more allowances if you also can take the Credit for Child
and Dependent Care Expenses, the Child Tax Credit, or if this
child qualifies you to use the Head of Household filing status.
The right number of allowances is the number that causes you to
have the right amount of income tax withheld -- regardless of how
many dependents you have.
You buy a house.
Welcome to the home mortgage interest deduction! Between that and
the deduction for property taxes, buying a home can make a big
difference on your tax bill. You might as well get the benefit of
those tax breaks all year, by adjusting your withholding
allowances. Remember, more allowances cause you to have less
You or your spouse changes jobs.
When you get a new job, you'll fill out a new Form W-4 right
away. But did you think to change your own tax withholding when
your spouse got a new job, was laid off, or changed to a job that
pays more or less than the old one?
Your spouse's income affects your tax situation. When his or
her income rises, you may be in a higher tax bracket. You may
want to claim fewer withholding allowances and have more tax
withheld. If your spouse's income goes down, or if he or she
stops earning an income, you may need to claim fewer allowances
so you have less income tax withheld - and keep a little more of
your pay in every check.
You have significant investment income.
Having a banner year as an investor? That's great, but don't get
hit with a big tax bill -- and possibly interest and penalties --
at the end of the year. You could send an estimated tax payment
to the IRS to avoid that possibility. Or you could take the easy
route. Have a little more taken out of your paycheck from now to
the end of the year, instead, by filing a new tax withholding
Any other event that affects your final tax
Don't leave your income tax withholding to chance, and don't
think you have to use exactly the number of allowances from the
IRS worksheet. The worksheet is only a guide. Choose the right
withholding status and number of allowances to have the right
amount of income tax withheld.
Be smart about your taxes
Staying aware of when you should file a new tax withholding
form is just one element of keeping your taxes as low as
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