From each paycheck your employer takes out money for the estimated income taxes you'll owe. Your employer determines how much to withhold based on your filing status and how many allowances -- sometimes mistakenly called exemptions -- you claim on your Form W-4. When you get a mortgage and you can deduct the interest, you'll owe less taxes, which might mean you can claim more allowances on your W-4. Adjusting your withholding will mean that you have less money withheld from each paycheck, so you'll get the money sooner rather than waiting until tax time to get a refund.
Estimate your total itemized deductions, including your mortgage interest. Other itemized deductions include medical expenses, charitable deductions and state and local taxes.
Estimate your adjustments to income, also known as above-the-line deductions. These include tuition and fees, contributions to your traditional IRA, moving expenses and student loan interest.
Use your total itemized deductions and your adjustments to income to complete the Deductions and Adjustments Worksheet. This form tells you how many allowances you're entitled to claim on your Form W-4. If the number of allowances permitted by the Deductions and Adjustments Worksheet is more than you currently claim on your W-4, you can increase your allowances. For example, if you claimed two allowances before, but with your mortgage interest the Deductions and Adjustments Worksheet says you can claim four, you can increase your number of allowances.
File a new W-4 with your employer with the increased number of allowances. Once you submit it, your employer must start using the updated number of allowances by the first payroll period ending 30 days after you turn it in.
Items you will need
- IRS Form W-4
- Creatas/Creatas/Getty Images
- W4 Form Explained
- How Often Can You Change Your Payroll Exemptions?
- Relationship Between W-4 Allowances & Tax Return Amount
- Difference Between a W-2 and W-4
- How to Update My W4
- W-4 vs. 1099
- What Percentage of Federal Taxes Is Withheld From the Check if Filing Single?
- How Many Allowances Should You Choose on Form W4?