Tax time is a good time to check up on many aspects of your finances. As I gather documents for my own tax return, I am aware that 2014 will likely be the last year in which I can claim a dependent. That also means my filing status will change from “Head of Household” to “Single” in 2015.
With that in mind, I made some changes to my W-4 form. When is the last time you checked your own W-4 form to see if it needs changes?
If you are an employee, you have a W-4 form on file with your employer. The information on the form guides the employer’s withholding of federal and state income tax from your paychecks. We fill those forms out when we start a new job; unfortunately, we sometimes never look at them again. If you have changes in your marital status or the number of dependents in your household, it’s generally wise to review your W-4.
What happens if you don’t? It could mean a surprise when you file your tax return. In a situation like mine, where I no longer have any dependents, failure to change my W-4 would probably mean I would need to pay extra tax (and maybe a penalty) when I file my 2015 tax return.
In a situation where the number of dependents goes up, you would get a larger tax refund. Generally that’s happy news to people, BUT… I always wonder how much better off they would’ve been with less income tax withheld from their paychecks all year long. Perhaps they would have had greater financial stability, less stress, fewer late fees, and less debt if they had received their pay throughout the year, rather than waiting for their tax refund.
Personally, I’m relieved that I remembered to make the change. More taxes will be withheld from my monthly paycheck, which will prevent an unpleasant surprise at tax time a year from now.