Don't let tax season intimidate you—stay informed.

We've swiftly transitioned from New Year wishes to urgent discussions about tax withholdings and potential owed amounts. Many life changes have occurred recently.

Over the past two years, numerous factors have impacted taxes, including the pandemic. People have relocated, changed jobs, or welcomed new family members; these changes should be updated on your W-4 form given to your employer. Your withholding represents the money deducted from your paycheck and sent directly to the IRS. Ideally, you want to balance it so you neither owe money nor receive too little back in a refund. However, if you missed adjusting your W-4 last year, you might face unexpected payments to Uncle Sam soon.

While changing your withholding can help manage tax impacts, it isn't a complete fix. If you haven't discussed recent tax law updates with your accountant, schedule a meeting soon. Notable changes include:

  • The standard deduction amounts have been revised. For 2021, it's $12,550 for single filers, $18,800 for heads of household, and $25,100 for married couples filing jointly. You can still choose between standard and itemized deductions. Use this interactive calculator to determine your best option.
  • If your medical expenses exceed 7.5% of your annual income, you can deduct them (this threshold was previously 10%). Just ensure itemizing makes sense for your situation and that it surpasses the standard deduction.
  • Changes to the Child Tax Credit. For 2021, it increased as part of the American Rescue Plan, rising from $2,000 per child to $3,600 for children under 6 and $3,000 for those aged 6-17. Remember, this phases out to $2,000 per child based on income. If you received advance payments, report the total from Letter 6419 when filing.
  • Do not report the Economic Impact Payment from 2021 as taxable income on your federal return.

You can still take actions to lower your tax liability before the April 18 deadline. Making a deductible IRA contribution can provide a tax deduction of up to $6,000, reducing your taxable income for 2021.

Most importantly, now is the perfect moment to adjust your withholding for 2022 if this year's results weren't what you wanted. Simply visit HR, express your desire to modify your W-4 withholding, and they'll provide a new form. Fill it out according to the IRS's withholding calculator or your accountant's advice for your specific situation. Don't wait until next year to worry; being proactive is key.