When you leave the nest and begin managing your own home, following a strict budget is essential to your survival. Discovering methods to maximize your income will determine whether you can afford to pay your bills and save for the future. Your employer withholds a percentage of your income to cover income taxes that you will owe at the end of the year. If you generally receive a tax refund on your income taxes paid, reducing your income tax withholdings can increase the amount of cash you have throughout the year.
Items you will need
- Previous year's tax return
- Form W-4
Visit the IRS website at irs.gov and navigate to the Withholdings Calculator.
Enter your information in the calculator and determine your federal tax withholdings. The calculator requires you to enter your filing status, number of dependents, estimated future income and potential credits. You can obtain most of this information off your previous year's income tax return.
Request a copy of Form W-4 from your employer's human resource department.
Enter your personal information in the bottom portion of the form. Because you already calculated your federal tax withholdings, disregard the Personal Allowances Worksheet.
Check the box that relates to your preferred federal withholding rate. If you are single, you must withhold at a single rate to guarantee that your employer withholds enough to cover your tax bill. Married couples with multiple incomes can elect to withhold at a married rate to avoid excessive withholdings.
Enter the number of withholdings previously determined with the IRS Withholdings Calculator in Box 5.
Place a line through Box 6. Entering an amount in this box will instruct your employer to withhold an additional amount from your wages.
Write the word "Exempt" in Box 7 if the Withholdings Calculator determined that you qualify to be exempt from federal tax withholdings. If you do not qualify, place a line through the box. Generally, if you have had zero tax liability in previous years and expect the same for the current year, you can claim exempt, which instructs your employer to withhold the minimum federal income taxes from your pay.
Sign and date Form W-4 and return the form to your employer's human resources department. Generally, the withholding changes will take effect within two pay periods.
- The more exemptions you claim, the less your employer will withhold.
- Alternatively, you can determine your federal tax withholdings by completing Worksheet 1 and Worksheet 7 on IRS Publication 919.
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