If you’re not self-employed, it’s likely that you’ve had to calculate your tax withholding for your employer. Your employer is required to withhold taxes from each of your paychecks by law. However, you can adjust your withholding by filling out a new modified W-4 form to your employer. The revised W-4 allows you to specify the number of allowances or extra withholding from your paycheck.
Luckily, the IRS also provides a withholding calculator that can help you determine if you are withholding too much or too little from your paychecks. The calculator is especially useful if you have more than one W-2 (such as you have multiple jobs or you’re married and both spouses work) or if your job situation changes midyear.
Sometimes it’s hard to understand how the “allowances” you put on your W-4 are related to the amount of withholding that will occur. One way to think about this is as follows.
If you’re single, the withholding algorithm will treat this amount of your income as not taxed:
Not taxed (single) = $3,700 + $4,150 * (number of allowances)
If you’re a single taxpayer, your $12,000 standard deduction means that $12,000 of your income is not taxed. That is why using “2” allowances on your W-4 line 5 would be appropriate, as that conveys to the withholding algorithm to consider exactly $3,700 + $4,150 * 2 = $12,000 of your income as not taxed.
Similarly, if you’re married but do not have any dependents, the withholding algorithm will treat this amount of your income as not taxed:
Not taxed (married) = $11,550 + $4,150 * (number of allowances)
Since when you’re married you get a $24,000 standard deduction, using “3” allowances on your W-4 line 5 is appropriate, as that causes the withholding algorithm to consider $11,550 + $4,150 * 3 = $24,000 of your income as not taxed.
Even if you’re itemizing your deductions, the majority of people are likely capable of filing their taxes themselves. Tax situations that may merit seeing a professional would be a small business, multiple state residencies/income, or overseas tax issues (foreign tax credit, foreign earned income exclusion). Tax preparation costs vary based on complexity and where you live, but most tax returns can be prepared by a professional for a few hundred dollars.
