Just One Thing for May

Keeping up with everything you should be doing can be overwhelming. So we’re focusing on Just One Thing every month to help you stay on top of your finances.

This month’s task is to review and update your W-4. Most of us filed our taxes last month, so the time is right to make sure your estimated tax payments (called “withholdings”) are accurate. Your W-4 acts like a budget for your estimated tax payments throughout the year. It tells your employer how much federal income tax to withhold from each paycheck. This ensures you avoid a large tax bill come filing time and keeps your finances on track.

Think of a tax refund as overpaying – you basically gave the IRS an interest-free loan. Owing taxes means underpaying – not enough was withheld.

Review your W-4 annually, especially if your life changed (marriage, kids, divorce, etc.) to ensure your employer withholds the right amount. Did you owe taxes or get a big refund? That’s a good sign it might be time for an update!

Freelancers and 1099 earners don’t have employers withholding taxes, so don’t have a W-4 to update. You’re responsible for making estimated tax payments quarterly. The IRS website offers resources to help you estimate your tax liability and make timely payments.