W4 Additional Withholding

On Form W-4, employees are required to provide their employers with information about their anticipated tax returns and their preferences regards to how much federal income taxes are withheld every pay period.

If you’re just beginning to file Form W-4, you can enter an additional withholding amount that is taken out on top of the normal rate. The additionally withheld amount increases your chances of avoiding any underpayment penalties as you can pay a fine if the total amount withheld is less than 90 percent of tax liability at the end of the year. Even if you withhold a majority of your tax bill, you can still pay penalties. Most employees that withheld less most of the year want to boost their withholdings to either avoid this penalty or to make sure they’re getting a refund. 

Additional withholding explained

For federal income tax purposes, employers are required to withhold tax from the income of employee(s). This is mandatory by federal law. If you’re someone that isn’t subject to federal income taxes due to how much you’re earning, you can also claim an exemption. Since most individuals in the United States make well over $12,400 during the tax year from wages, the W4 is needed to provide information to employers for an accurate withholding rate.

Sometimes though there can be life events where you make more than you anticipate during the year and as a result, you’ll have a higher tax burden. As with anyone, you would want to avoid under-withholding penalties, so, you will need to withhold tax at a higher rate. Considering that the income you earn from the business you’re working at isn’t going to change suddenly and your employer won’t withhold income taxes at a higher rate, you’ll need to enter an additional withholding amount. This will increase the total amount withheld, helping you catch to at least 90 percent of your tax liability.

How to withhold more tax every pay period in extra?

On the Form W4 for the 2021 tax season, you can enter an additional withholding amount on Step 4(c). The amount entered on the W4 is withheld in extra every pay period. Whether you’re paid weekly, bi-weekly, or monthly, the additional withholding amount will be withheld from your income. Take note that you’ll need to fill out a new Form W4 if you ever want to revert these changes. 

As for how much to enter, make the math yourself and enter the extra withholding amount. For example, if you need to withhold $2,000 in extra and there are 20 weeks left for the tax year to end and you’re getting paid weekly, you’ll need to enter $100 as the extra withholding amount. 

The same as underpaying, overpaying taxes isn’t a good idea neither. It’s not wise to let the government keep your money for months on end whereas you could earn interest or find a way to invest that money to make it grow. You’re not getting any money in extra when you basically loan your money to the government.

Be mindful about how much tax is withheld every paycheck and also put emphasis on the amount you expect to owe to the Internal Revenue Service. Entering an additional withholding is great for ensuring you don’t owe the IRS, but it isn’t a good idea to utilize this in your payroll if you’re not going to owe taxes as it leads to a reduced cash flow.

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