Summer is a popular time for many major life changes – births, weddings, graduations and relocations – and they all can change taxpayers’ eligibility for tax credits and deductions. For this reason and because July is right in the middle of the calendar, July is a great time to review the past six months and make tax plans for the next six.
An estimated 2 in 5 taxpayers don’t update their W-4 when they experience major life changes. Updating Form W-4 is important because it determines how much federal income tax is withheld from every paycheck by factoring in the number of allowances claimed and marital status.
Updating the W-4 may be beneficial even if no major life changes occurred. For example, taxpayers who got a big tax refund this year and would rather get that money throughout the year could benefit from changing the information on their W-4. The average refund is approximately $3,000. That’s an extra $250 per month someone could have in their paychecks by adjusting withholdings.