Surprises can be fun – just not necessarily when it comes to your taxes. Sure, a bigger refund can be a welcome surprise – but what if you get back less than you expected? Here are four things you can do to ensure you’re paying the right amount of income tax throughout the year:
Update your W-4. Anytime you start a new job, you fill out a Form W-4, Employee’s Withholding Allowance Certificate. Your employer uses the form to figure the amount of federal income tax to withhold from your pay based on things like your marital status and number of dependents. Certain major life events (marriage, the birth of a child, etc.) can impact how much tax should be withheld from your paycheck. If you need to account for a major change in your personal situation, you should be able to submit a new Form W–4 anytime. If you are unsure how much of your income should be withheld, use the IRS Withholding Calculator on IRS.gov to help you fill out the form accurately.
Pay your estimated tax every quarter. If your income is not subject to withholding, you may need to pay estimated tax. If you are self-employed or have significant income from rental properties or other investments, you most likely owe estimated tax. Estimated income tax is usually paid in four installments over the course of the year.
Know about the latest tax law changes. The Tax Cuts and Jobs Act was signed into law in Dec., 2017 and most of the new laws took effect on Jan 1, 2018. It is the most significant tax reform since 1986, and it includes some pretty major changes to the tax code. You’ll want to stay informed of the changes to avoid any surprises when you file in 2019.
Report Changes in Circumstances. If you purchase your health insurance through the Marketplace, you may be eligible for the premium tax credit to offset the cost of coverage. Depending on your situation, you may choose to receive the credit early, instead of with your tax return. If you do receive the advance credit and you experience a change – like getting a new job, getting married, or having a child – you will need to report your changes in circumstance to the Health Insurance Marketplace. You should also notify the Marketplace when you move out of the area covered by your current plan. Reporting changes will help you get the proper amount of financial aid.
(Post updated: August 3, 2018)