Every new employee has to fill a Form W-4 for their employer, and that will determine how much your employer must withhold from your paycheck every month.
This is due to the employee specifying how much income and what tax credits they’ll use. For instance an employee that decides to have less taken out, will see a bigger paycheck, but a small tax refund at the end of the year, no refund at all or receive a tax bill still owing taxes.
Here are some factors to consider when filling a Form W-4
Among the factors to consider when completing a Form W-4 are that claiming a Child Tax Credit and other Dependent Credit will lower the amount that is withheld each paycheck.
For example if you have additional income due to a second job or investments, it’s recommended for you to adjust your W-4 to have more withheld.
But those that are expecting to claim itemized instead of standard deductions, shoul look to have less withheld.
The more taxes withheld, the bigger the chances that an individual has to over-withhold, which could lead to a bigger tax refund. Think of it as a savings account, it’s called a refund, because they refund you the money you previously overpaid to the IRS.
There’s calculators online that help taxpayers decide how much they must enter in their W-4.
Choosing the right filing status
Each taxpayer must choose the filing status that best suits their needs and that it can influence the possibility of them receiving a tax refund, as it determines the standard deduction, their requirements for filing, meaning it will show how much you end up paying of being refunded in taxes.
The most common filing statuses available for taxpayers are:
- Married filing jointly
- Married filing separately
- Head of household