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Do You Need to Adjust Your Tax Withholding?

Once you've filed last year's tax return and can see where your finances are headed this year, it may be a good time to adjust your income tax withholding to help make sure you're having the right amount withheld from your paycheck.


Tax withholding is a balancing act. If you have too much tax withheld, you will receive a refund when you file your income tax return. If you prefer to receive more in your paycheck instead, you will need to reduce your withholding. However, if you have too little tax withheld, you will owe tax when you file your tax return and might owe a penalty.


Two tools — IRS Form W-4 and the Tax Withholding Estimator on irs.gov — can be used to help figure out the right amount of federal income tax to have withheld from your paycheck. Using these can be beneficial when tax laws change, your filing status changes, you start a new job, or you have other major life changes. You might make a special effort to review your withholding if any of the following situations apply:


  • Filing as a two-income family

  • Holding more than one job at the same time

  • Working for only part of the year

  • Claiming credits, such as the child tax credit

  • Itemizing deductions

  • Having a high income and a complex return


How to adjust your withholding


Your employer will withhold tax from your paycheck based on the information you provide on Form W-4 and the IRS withholding tables. In some cases, you will need to give your employer a new Form W-4 within 10 days of a change in personal circumstances (for example, if the number of allowances you are allowed to claim is reduced or your filing status changes from married to single). In other cases, you can submit a new Form W-4 whenever you wish. See IRS Publication 505 for more information.


If you have a large amount of nonwage income, such as interest, dividends, or capital gains, you might want to increase the tax withheld or claim fewer allowances. In this situation, also consider making estimated tax payments using IRS Form 1040-ES.


You can claim exemption from federal tax withholding on Form W-4 if both of these situations apply: (1) in the prior tax year, you were entitled to a refund of all federal income tax withheld because you had no tax liability, and (2) for the current year, you expect a refund of all federal income tax withheld because you anticipate having no tax liability.


Source:

Securities offered through Lincoln Investment, Broker/Dealer, Member FINRA / SIPC.  www.lincolninvestment.com


Advisory Services may be offered through Lincoln Investment, or Capital Analysts, Registered Investment Advisers.


Allen Associates and the above firms are independent and non-affiliated. 


The Lincoln Investment Companies do not provide tax, legal, or social security claiming advice. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Diversification or asset allocation do not guarantee a profit or protect against a loss.


This communication is strictly intended for individuals residing in the state(s) of NJ. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Advisor Solutions Copyright 2024.


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