If you received a large tax refund or owed a large balance on your 2016 income tax return, it may be time for you to check your withholdings.
Try to calculate your tax withholding to be as close to the actual amount of your tax liability at the end of the year. This will prevent you from being penalized for underpayment through accurate withholdings and from giving the IRS interest-free use of your money during the year.
To calculate the proper withholding amount, keep these general rules in mind. For most taxpayers, your withholdings must equal either the prior year’s tax or 90 percent of the current year’s tax liability. If your income is more than $150,000 ($75,000 if married filing separate), you must pay 110 percent of last year’s tax obligation to be safe from an underpayment penalty.
If your income is fairly predictable for the year, take your tax obligation from last year and divide it by the number of paychecks you will receive. That will give you a general idea of the amount that should be withheld. Simply file a new W-4 with your employer to adjust withholdings.
Unfortunately, it is often not that simple. If you have fluctuating income or multiple sources of income, you may need some assistance. The W-4 has some worksheets to help you with this process. If you need help please feel free to call. No one likes an unpleasant tax surprise.