Under paying may result in penalties (oh no!) and over paying will result in a refund. It's best for you to withhold as accurately as possible.
What is withholding?
When we talk about withholding we are talking about all the money withheld on your check.
Federal income tax
Social security
Medicare
If you are self employed your withholding won't be on a check it will be in the form of estimated tax payments.
Why does it matter?
If you aren't withholding or paying enough money throughout the year than you will have a big tax bill when tax season rolls around.
If you don't pay in time then you will be penalized. Tax penalties are charged interest (no!). So if you get slapped with a $10,000 tax bill and you can't pay in time- you'll get a penalty which will accrue interest. !!!
If you are overpaying then you will receive a large refund at the end of the year. A large refund might be fun to get but it means you could've had more take home pay throughout the year. Also the timing for refunds can be unreliable; with the IRS backlogged you might have to wait on that large refund.
How do I know if my payment is accurate?
Your withholding will be set up when you enter employment. But it's a good idea to check with your accounting department after a life change such as:
getting married
divorce
a new child
new home purchase
changes in tax laws
Here is a resource from the IRS to estimate your withholding amount. CLICK HERE
Conclusion
Whether you need to pay a little more to avoid a large bill or hold onto money that is yours it's important to get your withholding amount accurate.
CLICK HERE for more resources to tax questions you may have. The IRS website is rich with information and videos to help you find what you need.
If you'd like to change your federal tax withholding all you need to do is download and fill out a W4 form and submit it to your employers. Download that form here.
Feel free to reach out to us if you have any further questions! 253-777-1106
This blog post is not a substitute for legal or financial advice.
All information was provided by the IRS.