Anyone that has ever received a paycheck has noticed that the government takes a (massive) piece. Your HR/Employer knows how much to withhold from each paycheck based partly on your W-4. According to the IRS one would,
Complete Form W-4 so that your employer can withhold the correct federal income tax from your pay. Consider completing a new Form W-4 each year and when personal or financial situation changes.
Specifically, the W-4 asks
an employee calculates the number of Form W-4 allowances he or she will claim, based on his or her expected tax filing situation for the year. For each Form W-4 allowance taken, the amount of money withheld as Federal income tax is reduced. This, in turn, reduces any tax refund the employee may be eligible for (i.e., if the funds were never withheld in the first place), or conversely raises one’s liability for taxes due. No interest is paid on over-withholding. Penalties are imposed for under-withholding beyond a certain threshold.
So in addition to creating my son’s New York 529, I knew I had to make some moves when it came to this important document. I called up my Human Resource Director who then had me call our PEO, however, it only took 20 minutes from start to finish.
I am probably in the minority when it comes to personal finance bloggers but I actually don’t mind providing the government with a small interest free loan. Why? Because there is little worse feeling than getting a bill from the Internal Revenue Service that you weren’t expecting. So to avoid that sinking stomach feeling I am happy to allow the government to waste my money for a year or so until it comes back when I get a refund.
The important part of the preceding paragraph is small. So to make sure my little tax deduction is account for in all of 2011 in the eyes of the IRS, I had to add a 1 (as in 1 dependent) on line “D” of my W-4.
When is the last time you updated your W4?