To little in federal tax withheld from your pay, means you need to fiind a lot of money when you file your taxes. If you withhold too much, you will get a large refund, but that means you gave up the use of your money interest free for several months.
What can you do?
Depending on your situation, and your choices. You may want to adjust your federal tax withholding with your employer.
What about if you married/divorced during the tax year?
Your calculations will change accordingly, can go either way. The same applies if added a dependent, purchased a home, changed jobs or retired.
How do you know? Obviously, you must do the numbers to find out by mid year, or when circumstances changes. You may want to do the calculations yourself or have a professional do it for you. Fill in all information that applies to your situation. Estimate when necessary. But remember, the results are only as accurate as the information you provide.
What happens then?
You must do nothing or adjust your federal withholding on Form W-4, Employee’s Withholding Allowance Certificate.
Documentation to keep.
Keep all calculations, asumptions, and documents in a secure place for when the time comes to do your taxes.
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