When’s the last time you updated your W-4? If you’ve been at the same employer for some time, chances are, it’s been a while. That’s why I want to talk about it today—while the year is still young. As a quick refresher, the W-4 is the IRS form that determines how much federal income tax should be withheld from your paychecks. A couple years ago, the IRS updated this form in an effort to more accurately deduct from taxpayers during the year. So, if you haven’t updated it in a while, you may not be getting the appropriate pay. Before I go any further, if you’re retired and no longer in the workforce or feel like your withholding is accurate, still keep reading. This could be something you can pass on to someone who may need to read this. But I also have a few other things I want to touch on in this letter that you may also want to consider.
Tax Refund vs. Tax Bill First, let me address the tax refund so many of us look forward to during tax season. That money the IRS is “refunding” you… already belonged to you the entire 365 days in the year before you filed your taxes. That means it could’ve gone to better use during the year. This is especially true if money is tight for you, if you just can never seem to save, or if you find it hard to prepare for somebody’s birthday or for vacations. Second, the tax bill. I don’t know anyone who likes being on the line for owing the IRS. It can throw off your plans, make you dip into your savings, or worse, scramble to pay back what you realize you don’t have. So, if you’ve found that you tend to owe after you file your taxes, adjusting your W-4 could do the trick.
Updating the W-4 If you feel like you may benefit from updating the W-4, reach out to your employer (likely your HR department) for a new form. Gone are the “allowances” section in the most recent version of the form, which has been in effect since 2020. But there’s a section where you can account for factors in your life, such as multiple jobs, children and dependents, and interest earned from savings and investment accounts. You can even enter a specific dollar amount you want withheld from each paycheck. But how do you know how much is the right amount? There’s a calculation that includes how much you make, your taxable income, your deduction (itemized or standard), and your tax bracket. But the long and short of it is, the IRS has a calculator that will do the hard part for you. It’s called the Tax Withholding Estimator, and it’s good for those who are salaried, paid hourly, or collect pension. I encourage you to use it. Even if you believe your withholding has been accurate, still take some time out to use this free estimator, anyway. You never know how much it could help your situation. If I hadn’t updated mine a couple weeks ago, the default withholding wouldn’t be enough to cover my 2022 income tax liability. So, while the year is still young, just take a look at this and consult a tax professional to see if you need to make changes. Now, some other changes you may want to make this year? I can think of a few (this applies to retirees, too)…
Making Other Changes Can you find cheaper car insurance? These days, you may not be driving as much. And now that insurance companies know that, they’ve adjusted their rates with features like pay-per-mile. Can you find cheaper homeowners/renters insurance? Do you still need that Grubhub+ subscription? Back in 2020, you may have found yourself staying home and having food come to you. (Hopefully, not too much, because that can get very expensive. Trust me… I know. I’m guilty.) But the world isn’t locked down anymore like it was then. You may not be guilty of ordering delivery like I have. But my point is this: How many subscriptions are you paying for that aren’t being used? I remember forgetting about cancelling my subscription to Calendly… until I saw the charge pop up. Oops! But a quick tip: Don’t be afraid to call customer service and ask if they’d be willing to drop the charge. I called the next day and they refunded me. I didn’t have to lie, get loud, or be rude about it. It doesn’t hurt to try. Amazon Prime, Hulu, HelloFresh, Netflix, Disney+… the list goes on. There are even subscriptions you only use for a limited amount of time that you might forget about. For instance, NFL Game Pass, which you might forget about in March, and Microsoft 365, which you may have only needed when you were working on a project… 3 months ago. I’m not saying to cut off all your subscriptions. I’m just saying if you aren’t using them, you’re wasting money. Get rid of them. There are several changes you may be able to make just by simply taking a little time to look at a few things in your life. And there’s no better time than now, at the beginning of a new year, to do it.
With gratitude,
Melody C. Kerr, MS
Writer, Editor, Financial Coach
P.S. If you feel like you need help making some changes in your life, you’re always welcome to reach out. Click here to schedule a complimentary session with me.
