Taxpayers sometimes have to little taken out for taxes from their paychecks. Though this may provide to more take-home pay, it’s important to note that this also may create a bill when taxes are due in April. Taxpayers must, therefore, ensure that they calculate the correct level of withholding. Paying more in taxes may result in a refund, but paying less can create an unwanted liability down the road.
Some of the considerations taxpayers should make when calculating their withholdings are the amount of exemptions they choose to take on their W-4, Employee’s Withholding Allowance Certificate. Taxpayers can take two types of exemptions: personal exemptions and exemptions for dependents.
Personal exemptions: Exemptions can be claimed for both a taxpayer and his or her spouse. When filing separately, a spousal exemption can be claimed only if she or he had no gross income, is not filing a return, and was not the dependent of another taxpayer.
Exemptions for dependents: Exemptions can usually be claimed for each dependent. The dependent must either be the taxpayer’ child or a relative that meets certain eligibility qualifications. Remember, spouses cannot be claimed as dependents.
If a taxpayer has miscalculated withholdings and finds that he or she owes the IRS, paying as soon as possible is definitely advisable. If left unpaid, the IRS will charge penalties and interest, grossly inflating the amount owed.
When there are major changes in income or deductions, it’s important to do the math correctly or simply pay more, when in doubt. Taxpayers that find it difficult to calculate their withholdings correctly may use the help of a tax professional. Those that cannot afford to hire professional help may seek assistance from a Low Income Taxpayer Clinic in their area.