Give Yourself A Raise: Edit Your W4
Give Yourself A Raise Next Payday
EMPLOYER’S RESPONSIBILITY – Employers are required by law to forward to the Internal Revenue Service any W-4 that claims “exempt” without being entitled to it or any W-4 with more than ten withholding allowances being claimed. The IRS then may contact the employee for substantiation. If the IRS rejects the W-4 both the Employer and the employee will be notified.
EMPLOYEE’S RESPONSIBILITIES – The Employee must give his employer a new Form W-4 within 10 days of any event that decreases the number of withholding allowances that the Employee has claimed, such as within 10 days of a divorce, if married status had been claimed. Each W-4 requires the Employee follow the instructions that come with the form and those that can be found elsewhere, including the IRS website. The IRS will impose penalties should the Employee under withhold that exceed the cost of borrowing the funds to pay the taxes. In addition, it is against the law to file a false W-4 and the Service can impose a civil penalty of $500, or a criminal penalty of $1,000 with a prison sentence of up to one year. Still, the Employee should not over withhold either and miss the income opportunity that this money represents. This is where the guidance of a qualified tax professional can be very beneficial.
ITEMS AFFECTING THE NUMBER OF EXEMPTIONS ALLOWED:
In addition to the number of dependents that the Employee has consideration should be given for increases and decreases it the number of jobs, starting or stopping of jobs, starting or stopping of self employment, IRA deductions, receipts of retirement benefits, charitable giving, dividends, interest income or expense, and tax credits for children, elderly, education, adoption and more, just to name a few.
Since these adjustments can increase the number of allowable exemptions dramatically, it is necessary to first test and then monitor the effect of the number of exemptions on the actual withholding when compared to a projection of what the expected tax liability will be come April 15th. Again, this is where the guidance of a qualified tax profession can be very beneficial. We can provide this expertise. Visit us year round.