Signs You Need to Change Your Tax Withholdings Nashua, NH Resident Seeks Advice

Your tax withholdings, the amount your employer deducts from your paycheck for federal and state income taxes, play a big role in whether you owe money or receive a refund at tax time. Many people set their withholdings once and never revisit them, but life changes quickly, and your financial situation often changes with it. Adjusting your withholdings can help you avoid unpleasant surprises when you file your return or prevent the IRS from holding onto your money interest-free all year.

A Nashua couple had received a large tax refund the previous year. Concerned that their tax withholdings were not properly set up, they sought advice from the team at Merrimack Tax Associates.

Top Signs that Your Withholdings Should Be Revisited

You Owed a Big Tax Bill or Got a Large Refund Last Year

If you were surprised by the size of your tax bill or refund last year, that’s a major indicator your withholdings aren’t aligned with your actual tax liability. Owing money to the IRS means too little was withheld, while a large refund means too much was withheld throughout the year. Ideally, your goal should be to break even, getting a small refund or owing a small amount.

You Started a New Job or Changed Employers

Each employer is responsible for withholding taxes based on your W-4 form. If you’ve recently changed jobs, make sure you filled out your new W-4 correctly. If you’re working multiple jobs or your spouse also works, the combined income could push you into a higher tax bracket, meaning your withholdings may need to increase to avoid underpayment penalties.

You Got Married or Divorced

Marital status significantly affects your tax situation. Getting married might move you into a new tax bracket or make you eligible for certain deductions. Conversely, divorce can mean losing credits or dependents that previously lowered your tax bill. In both cases, updating your W-4 with your current filing status ensures that your withholdings accurately reflect your new situation.

You Had a Baby or Can No Longer Claim a Dependent

Having a child typically increases your eligibility for credits like the Child Tax Credit and the Earned Income Tax Credit. On the other hand, if your child turned 18, graduated, or is no longer

a dependent, your tax situation changes in the opposite direction. These shifts directly affect your tax liability, making it essential to adjust your withholdings accordingly.

You Took on a Side Gig or Freelance Work

Side gigs and self-employment income don’t have automatic tax withholdings. If you’re earning extra money outside your regular paycheck, you might need to increase your withholdings on your main job or make estimated quarterly tax payments. Ignoring this step could result in a large balance due at tax time.

When you experience one of these life changes, it is important to revisit your tax withholdings. The IRS W-4 form was designed to make adjusting your withholdings easier. A quick review once or twice a year, especially after big life changes, can help you avoid costly surprises and keep more of your money in your hands. The Nashua couple was able to make the necessary changes to their W-4 with their employers and can expect to have a more accurate amount of taxes withheld in the future.