Many times when our living circumstances change, our tax obligations also change and we end up paying less or more in taxes to the IRS. When you pay too much in taxes, the IRS issues you a refund; when you don’t pay enough in taxes, you will have a tax debt. When you’re paying estimated taxes, it’s important to accurately determine the amount of taxes you owe so that you don’t pay too little.
When you take a new job, it’s the responsibility of your employer to calculate the amount of tax to be withdrawn from your pay. You’ll be asked to fill Form W-4, Employee's Withholding Allowance Certificate, and based on this form your employer will calculate and remove the amount you elect to have withheld from each paycheck. You can double-check how to correctly fill out this form by using the IRS Withholding Calculator on the IRS website - irs.gov.
If, on the other hand, you’re self-employed, receiving income from interest, dividends, or rent, you’ll be paying estimated taxes. Usually, you’ll need to pay these taxes quarterly, at specific intervals throughout the year. In order to calculate your estimated taxes properly, you may use the worksheet in Form 1040-ES, Estimated Tax for Individuals. Remember that paying more is always safer than paying less.
There are also life events that change your personal, tax or financial status. Should you have a change in your marital status, the birth of a child, buying a new home, caring for a dependent, etc. then you should make the necessary changes in your Form W-4. If you’re paying estimated taxes, recalculate your figures accordingly. You can usually submit a new Form W–4 anytime.
If you’re receiving advance payment of the premium tax credit in 2014, you need to report items such as changes in your income or the size of your family to the Health Insurance Marketplace. Also, you must notify the Marketplace when you move out of the area covered by your current plan. Timely reporting of changes ensures that you get the appropriate financial assistance.