Author: Tammy Doss
It’s a great time to review and update your tax deductions for 2022. You may have just finished filing your 2021 tax return. You now know how much tax you paid in or owed for both your State Tax Return and your Federal Tax Return. If everything went well, you didn’t owe any money and hopefully are expecting a very small tax refund check from each entity.
A couple of things to consider. If you are expecting a large tax refund from either the State or the Federal government congratulations. However, it is better NOT TO PAY IN MORE THAN YOU OWE! You can manage your own money better than anyone else. Your money could have been growing in a savings account, IRA or 401K investment or any other interest-bearing account. You are further inconvenienced by waiting for your refund check.
Second, it is very important that you take a good look at your tax situation going forward. If you know that you pay a specific amount in taxes to the State and the Federal government adjust your withholding from your payroll check to reflect that.
You will need to take into consideration your current salary and if you expect to make a considerable amount more this year. For most people their compensation doesn’t increase more than a few percentage points per year. If you are NOT expecting to double your salary this year you may want to consider an option that does not show up on the W-4 for Federal or State withholding forms.
Here is how this would work. If you make $40,000.00 per year and you know that you pay 10% of your compensation in taxes to the State and 20% to the federal government, you can set up those percentages for deductions on your payroll checks for State and Federal withholding.
The other taxes that come out of your check are OASDI, Medicare, and in California, CA-SDI. These taxes cannot be adjusted or changed. These deductions are mandatory.
When you complete your new W-4 (Federal withholding form) and in California your DE-4 (State withholding form) attach a signed statement indicating what percentage of tax you want deducted from each of your payroll checks for both Federal and State withholding if you choose this option. By doing this you will override the withholding guidelines on the W-4 and DE-4 forms.
It is very important to READ THE FORMS carefully for your 2022 paycheck withholding! For example, on the W-4 form if you work more than one job you will want to check the box in Step 2 (c) Multiple Jobs, to avoid being overtaxed. If your family has grown, you will want to be sure to complete and update Step 3 Claim Dependents, and if you have specific tax issues for 2022 you will want to fill out Step 4 for Other Adjustments to withholding.
If you are happy with the deductions as they are currently coming out of your paycheck, simply complete the forms for the new year. Update any address changes, changes in marital status, the number of dependents and sign and date the forms.
One last thing. You can change your withholding options at any time during the year by simply completing new Federal and State withholding forms. When you get that HUGE BONUS, you may want to consider updating your withholding. Significant increases or decreases in pay should be taken into consideration. As always, The Job Shop staff is here to provide you with the forms you may need. We do not provide tax advice so you will want to consult your tax professional for your specific needs.