Taxation & Estate Planning

The Effects of Life's Changes on Your Federal Withholding

By Darrin Mish

It seems that the IRS makes its presence known in everything you do in your life. Getting married, getting divorced, having a baby, transferring to a new job, buying a home and even purchasing an energy efficient car have tax implications. The effects of alimony on your withholding tax and the forms of IRS assistance on this matter will be discussed in this write-up.

Paying federal income taxes can be done using any of the two: estimated tax or withholding tax. The self-employed usually utilize the estimated tax. "Estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well," describes the IRS. Employees, however, settle their taxes by withholding, meaning their employers withhold income tax from their monthly salaries. Whether taxes are taken from your job or other forms of income like pensions, gambling winnings, bonuses and commission, they will always be filed under your name.

Your salary and specific data in your W-4 (including details on whether you are withholding at the single rate or the lesser married rate, how many withholding allowances you can claim, and whether you want any additional income withheld) determine the amount that will be withheld from your pay. Using the IRS's Withholding Calculator will make the computation of your taxes easier.

Alimony adjustment is one way of changing the amount that is withheld from your pay. To apply for this, you need to accomplish a new W-4 and forward it to your employer. All you have to do to avail of this is forward to your employer a newly-accomplished W-4.

Alimony payments are among those considered as taxable income. Thus, to update your income records, you must accomplish a new W-4 if you are a beneficiary of these. Doing otherwise might leave you with more taxes to settle at the end of the year.

On the contrary, if you are the one paying for the alimony, then this expense is tax deductible.  For alimony to be qualified as a tax deduction, it has to be given in cash, through a check or through money order. If you have worked out a deal with your ex-spouse and agreed to directly settle certain bills for her/him, this arrangement is not considered as alimony. Again, you just need to fill out a new W-4 to reflect your expenses of paying for alimony.

Life changes are inevitable and some of them are more drastic than others.  When they do come your way, do not forget to adjust the amount of income you have withheld from your paycheck.

The Law Offices of Darrin T. Mish is a tax problem resolution firm, located in Tampa, Florida. Mr. Mish is an experienced, nationally recognized tax attorney who has been practicing tax law for over a decade. He has an AV rating by Martindale-Hubbell and has been honored with a listing in Martindale-Hubbell?s Bar Register of Preeminent Lawyers. His passion is providing IRS help to taxpayers, and with that in mind, he travels the country training other attorneys, CPAs and enrolled agents on how to handle their toughest cases with the IRS. He is also a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. If you would like more information about his practice and how he can help you, please call his office at (813) 229-7100 or toll free at 1-888-GET-MISH.

Full post as published by IRS Problem Solver Blog on August 15, 2009 (boomark / email).