Now is an excellent time to check your withholding. Even if you are getting a refund on your 2021 taxes, changes in your life could impact your withholding and taxes due on your 2022 income.
You need to update your withholding when there is a change in your job, your income, and your life. These changes are pretty obvious: you bought a house, or got married, or got divorced, and you’re paying or collecting alimony, or you had a baby, or your “baby” is now an adult and is no longer your dependent.
You might also want to change your withholding because you need forced savings. It surprises me that some taxpayers feel this way and welcome a big refund check because there are better ways to have forced savings.
The IRS form to change your withholding at work is the W-4. Get the form from your employer or on the IRS.gov website.
If you require forced savings, ask your employer if there is a company savings plan or a company stock ownership plan, or an IRA or 401(k) plan that might get you an additional employer contribution.
As of April 1st, the IRS reported that the average refund for the 2021 tax year was $3,226. That’s better than $60 per week, which taxpayers could have used, saved, or invested during the course of 2021.
Maybe $60 per week doesn’t ring bells for you, but $3,226 does? Having too much withholding is one of those personal decisions you need to make.
More importantly, avoid being under-withheld because that could trigger penalties and a big headache when tax time comes around.
Disclaimer: Alan Mendelson is a well-known TV consumer news reporter who reports on tax issues. You should seek professional advice if you have tax questions or issues.