How to adjust your withholding
To make changes to your W-4, see your benefits department or
download a W-4 from the IRS. Taxpayers generally take one withholding allowance for themselves and each dependent.
You can also allot for deductions you take every year–such as for mortgage interest, property taxes, and charitable giving–if you itemize. Increasing allowances will leave more in your paycheck, while lowering allowances will withhold more.
When to adjust your withholding
There is no limit on how often you can adjust your withholding, so complete a new W-4 form every time your life changes in a way that affects income taxes, such as:
Lower your tax bill
Saving and investing plans can help lower your tax bill.
- Individual Retirement Account (IRA): Those who meet IRS income requirements and other rules can deduct traditional IRA contributions. (See IRS Web site for deductibility details.)
- Employer retirement plans: Saving in tax-deferred 401(k), 403(b), and 457 retirement plans will lower your tax bill. Every dollar saved will lower your taxable income, and therefore lower your overall tax bill. Run the numbers. SEP-IRAs, Keoghs and Solo 401(k) plans will do the same for the self-employed.
- Hold long-term: If you buy stocks or mutual funds in taxable accounts, hold them for at least a year to qualify for lower capital gains tax rates.