How Does a Career Change Affect Your Tax Situation?
We’re now less than one month away from the dreaded tax day, and I’ve heard a number of friends and family say they still haven’t filed taxes. One of my friends spent an hour on the phone with Turbo Tax last week struggling to understand why something wasn’t working on her taxes. We all know that marriages and children can affect our tax status, but did you know that changing jobs can also either positively or adversely affect the way you’re being taxed?
Our friends at Citi’s Women & Co. brought us “How Does a Career Change Affect My Taxes?” and their advice is right on.
First, if you started a new job, you’re going to want to make sure you didn’t change the wrong things on your W-4 and ensure you’re having the right amounts pulled from your paycheck each month.
Adjusting Your Form W-4. When you start a new job, you’ll need to complete Internal Revenue Service (IRS) Form W-4. Form W-4 is the document you file with your employer that determines how much federal income tax is withheld from your paycheck. The amount is based on your marital status and the number of allowances you claim—typically, the more allowances you claim, the less tax your employer withholds.
In addition to adjusting your W-4 withholdings when starting a new job, you’ll also need to adjust it when other major life changes occur, such as becoming a parent, getting married, and buying a house. This is important because the number of withholdings you claim should be balanced by the credits and deductions that you will claim on your tax returns. Need to change your withholding amount? Ask your employer for a new Form W-4 or download and print the form on the IRS website. Complete the form and submit it to your employer to change your withholdings. To learn more about completing the form, check out H&R Block’s Tax Tip on Form W-4.
You’re also going to want to consider the ramifications of receiving unemployment pay. You may not know it, but unemployment is taxable:
Unemployment. If you lose your job, you may be entitled to receive unemployment compensation. Unemployment compensation benefits are fully taxable. If you receive unemployment compensation, you may be required to make quarterly estimated tax payments. You can learn more about estimated tax payments in H&R Block’s Tax Tip on Estimated Tax Payments. You can also voluntarily choose to have 10% of your unemployment payment withheld to help pay your federal taxes. To have federal taxes withheld from your unemployment compensation, file a Form W-4V: Voluntary Withholding Request and give it to the payer.