While it’s important for individuals and businesses alike to keep up with major tax law changes, it’s also a good idea for you to keep up with changes in your own life when it comes to tax documents. One specific document that many people should update from time to time is the W4 form that is provided to employers.
The W4 form is required by every employer who hires a W2 employee. These are classified as traditional full-time or part-time employees and the employer withholds taxes from the employee’s check and pays that money to the IRS. In situations where a person is a contractor and not an employee, the individual usually fills out a W9 form instead of a W4, and the recipient of the form simply reports income to tax agencies and does not withhold any amount.
One component of the W4 form is providing the number of dependents you plan to claim on your taxes. This number doesn’t have to correspond directly to your tax return, but a mismatch between the numbers could result in too much or not enough withholding.
If you claim fewer dependents on your W4 than your tax return, you may be more likely to get a refund. But that also means you let the IRS keep money throughout the year that you could have had for yourself. If you claim more dependents on your W4 than your tax return, you may receive more of your wages during the year but owe come tax time.
Balancing these figures and keeping them updated according to your actual dependent number and your financial needs is important. Individuals with complex tax issues may benefit from third party advice on these and other tax questions.
Source: IRS, “IRS Withholding Calculator,” accessed June 12, 2015