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Question:


When do I need to change my tax withholdings? What are some life events that would warrant this?
-TaxMinded


Answer:


Any of several developments could be a good reason to change the number of withholdings, such as the birth of a child or if you begin caring for a parent or other relative and spend a sufficient amount that you can claim the person as a dependent. Getting married also influences your tax liability, but in that case you would change your filing status, not the number of exemptions you take. The addition of important things, not just people, could also warrant reducing your withholding. Buying a home, for instance, usually means taking on a mortgage, and that probably would give you a significant tax deduction.
 
Other reasons for having less withheld include significant health expenditures or a large increase in the amount set aside for a 401(k) or other retirement plan. Sometimes the event that leads taxpayers to reduce the amounts they have withheld is a realization that they have been claiming big refunds year after year, meaning that they have had too much taken out of each paycheck. Taxpayers are required to pay at least as much each year, through withholding or estimated tax payments, as their prior year’s liability or 90 percent of the amount that they will owe for the current year, whichever is less. Anything more than that is an interest-free loan to the IRS.
-Conrad de Aenlle



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