Get to Know Your W4

It has happened! Tax day has arrived and gone by. Perhaps you were tickled pink with a big fat return. Or, perhaps, you were sad that you had to pay in. Either way, it is done, and for most of us, we will erase income taxes from our short term memory until next year.

Recently, I have seen quite a bit of posting on social media around taxes - refunds and paying in. At times these posts seem to be asking the riddle of the Sphynx - why did I have to pay? Why was my refund so big?

While not a tax expert, this posting made me think of an important to-do, I feel, for individuals receiving income reported on a W2 - Get to Know Your W4!If you haven't started a job in a few years, you may have forgotten the pile of paperwork that you had to complete on your first day. Beyond proving that you are legally able to work in the USA, you had to tell your employer's payroll department how you wanted to be taxed. This was done by completing a W4. It is has been my experience that when talking to W2 employees, either as clients or friends, that many don't realize that this W4 is not a once and done document - it can be and should be updated when you experience certain life events.

Simply put, a W4 asks you a series of questions to determine your tax filing status - are you single or married? Do you have other exemptions (i.e. kids); are you head of household (which  has nothing to do with Big Brother the TV show, or whether or not you are the primary breadwinner in the home); and are there others sources of household income? Your responses directly impact the amount that your employer withholds from your paycheck.

Turbo Tax, a well know self-filing Tax Software system and website, posted the following article providing guidance on when it is appropriate to update your W4. Top 5 Reasons to Adjust Your W4

So, before you erase your memory the reality of Income Taxes, take a couple of minutes to do the following:

1. Call your HR Department and ask for your current filing status. Generally, the response you will get is Single or Married and the number of exemptions you have claimed. You may also find this information on your pay stub.

2. Go to the IRS Website and fill out a 2013 W4 - be sure to read the full instructions.

3. Compare your current filing status to the results you found on your W4 and determine if you need to make any changes

4. Contact your accounting/tax professional for feedback. Keep in mind, this person may want to look at your W4 in conjunction with other jobs you hold and/or your spouse's W4.

5. If necessary, submit a new W4 to your HR Department!

Remember, changes will have a direct affect on your Net Pay (take home pay) every paycheck - if you tell HR to withhold less, your paycheck will go up. If you find that you should withhold more, then your paycheck will go down. I always recommend that people make these changes in conjunction with a tax professional - one who understands your goals. Just because the W4 says you should have less withheld, doesn't mean you will want to  (based on other tax issues you face) or have to!