Did you owe the IRS on your 2015 tax return? If so, and you aren’t set up for quarterly estimated tax payments, you may want to consider adjusting the federal income tax amount withheld from your paycheck.
The amount your employer withholds for federal income tax is calculated based on withholding for either a single or married individual and the number of allowances you claim. The fewer allowances you claim, the greater the withholding amount will be.
One might think your allowance total should be the number of exemptions you claim on your tax return (for example 4 for a family of 4). This might be true if you are single and your only income is from a single employer. However, that might not be the case if you expect to have other income from which taxes are not withheld (interest, dividends, capital gains, business or rental income, etc.). Having more than one job also increases your chance of needing additional withholding. Lowering the number of allowances will increase the taxes withheld from your paycheck, which will reduce your balance due or increase your tax refund.
If you already claim zero allowances and you are married, and you want an even higher amount withheld, you can also use the “Married but withhold at Single rate” option. As another option, you can write in an additional amount you want withheld from each paycheck.
To adjust your allowances, fill out form W-4 and hand it in to your company’s Human Resources department. With this form, you may also elect to have additional amounts withheld from your paycheck for federal income tax.
The IRS provides a withholding table which shows the amount to be withheld. The tables appear starting on page 32 of this tax guide. With these tables, you can see how much will be withheld from your paycheck based on your filing status (single or married) and the number of allowances you claimed.
Also the IRS has released the 2016 tax brackets. The brackets have changed slightly from 2015. The tax brackets can be found on our tax rate article.
If your state has an income tax also you may want to change the amount being withheld for the state. There is a separate withholding form for the state.