Correct Withholdings

IRS Publication 919 May Help Employees Understand Withholding Changes

The IRS has published the 2011 version of Publication 919, How Do I Adjust My Tax Withholding?,  this Publication is used to help employees calculate whether they are having enough federal income tax withheld, and whether they should complete a new Form w-4 to adjust their withholding.  The IRS warns taxpayers that if too little income tax is withheld during the year, they will owe tax when they file their income tax return, and maybe interest and penalties.  On the other hand, if too much tax is withheld, it is just like giving the government an interest-free loan of money the taxpayer could be using until they file their income tax return.  There are worksheets to help employees estimate their 2011 tax liability and compute withholding.

The IRS advises employees to check their withholding:

• after receiving their first payment for a full pay period in the current year;
• after preparing their 2010 tax return and getting a big refund or paying a balance due that is more than they can comfortably pay or that subjects them to a penalty;
• if they have had a lifestyle change (e.g., marriage, divorce, birth or adoption of a child, loss of an exemption, purchase or sale of a new home, or retirement); or
• if they have had significant changes in their income or itemized deductions or tax credits.

The IRS says there is a good chance that employees are not having enough tax withheld if:

• they have more than one job at a time;
• their spouse also works;
• they have income not subject to withholding, such as capital gains, rental income, interest, and dividends; or
• they owe other taxes, such as self-employment tax or household employment taxes.