Tax season is a reminder of the importance to check Federal and State withholding allowances at least once a year. The last thing we want is our clients being surprised by a tax bill that could have easily been resolved by adjusting allowances. The payroll withholding system is straight forward for the taxpayer who files single, with the standard deduction, and only has one job. For those that do not fit in this category it is likely withholding allowance should be something to pay close attention to. Life changes such as marriage, divorce, loss of a dependent, birth of a child, and selling or purchasing a primary residence can all affect what withholding allowances should be.
In addition to life changes affecting withholding allowances being a part of a dual income household introduces other complications. Couples who both work are surprised when they were single taxpayers receiving significant refunds and now married barely breaking even or owing taxes. Employers withhold based on the tax bracket they expect taxpayers to be in based on salary. The combination of a couples’ income can push them into higher tax brackets that taxes are not being withheld for. We recommend checking the “Married, but withhold at higher Single rate” box on the Federal Form W-4 for couples who are both working if underpayment is a concern.
With the new tax law changes for North Carolina all employers should have reached out regarding adjusting allowances using the new worksheets. With the introduction of new penalties for underpayment we are telling our clients when in doubt claim 0. We can always reassess after 2014 taxes are filed whether this should be adjusted.
In an average year most employers will not remind you as an employee to revisit your withholding allowances for Federal and State taxes. Taking the time to contact your employer or the human resources department could save a lot of stress at tax time. Below are the withholding forms and worksheets. As always we are happy to help with any questions!
Federal Form W-4
http://www.irs.gov/pub/irs-pdf/fw4.pdf
North Carolina Form NC-4