What your employees need to know about paycheck withholding.

We often get a lot of questions about withholding in paychecks and just how that system works and how it affects your end of year taxes. If your employees are similarly confused about how the amount is calculated or if they can adjust that number somehow (or if they SHOULD adjust it), here is some info they will probably be interested in:

First of all, withholding is tax that an employer “withholds” from a paycheck and then sends directly to the IRS on the employee’s behalf.

The amount withheld is based on how much you earn and what you put on the W-4 form that you submitted when you started your job. If you decide to change this information, you can submit a new W-4 at any time.

If too much is withheld, you get a refund. If not enough is withheld, then you owe the IRS.

The IRS has an estimating tool on their website to help you figure out if you will get a refund, tax due, and how take home pay is affected. You can find it here. Have your paystub and most recent tax return ready.

So, SHOULD you adjust your withholding? Maybe! If you owe a large amount to the IRS, an adjustment can help you owe less next year. Keep in mind that means a slightly smaller paycheck over the course of the year. If you got a huge refund–that’s not free money– you gave the government a free loan! Wouldn’t it be better to have that extra money throughout the year?

When it comes to withholding and taxes, getting as close to zero is the name of the game. Keeping as much of your paycheck as possible throughout the year while keeping your end of year tax bill minimal is making the most of your hard earned dollars. When was the last time you adjusted your withholdings? Do you strategize to “break even” or do you just cross your fingers and hope for the best? Let us know in the comments!