Were you surprised to discover you owed money on your 2019 tax return? You might want to change your paycheck withholding so that this doesn’t happen next year. If you received a large refund, you also might want to review your withholdings. Receiving a tax refund essentially means you gave the government an interest-free loan.
Changes to Withholding Calculations
In 2018, the IRS updated the withholding tables that indicate how much employers should hold back from their employees’ paychecks. In general, the amount withheld was reduced. This was done to reflect changes under the Tax Cuts and Jobs Act — including an increase in the standard deduction, suspension of personal exemptions, and changes in tax rates. The tables may have provided the correct amount of tax withholding for some individuals, but they might have caused other taxpayers to not have enough money withheld to pay their ultimate tax liabilities.
Take the Time to Review and Possibly Adjust Your Withholding Amount
The IRS is advising taxpayers to review their tax situations for this year and adjust paycheck withholding, if appropriate. The tax agency has a withholding calculator to assist you in conducting a paycheck checkup. The calculator reflects tax law changes in areas such as available itemized deductions, the increased child credit, the new dependent credit and the repeal of dependent exemptions. You can access the IRS calculator here.
When Changes Might Be Needed
There are some life events that require a paycheck withholding check. In addition to tax law changes, the IRS recommends that you perform a checkup if you:
- Changed your withholding in 2019, especially in the middle or later part of the year
- Owed additional tax when you filed your 2019 return
- Received a refund that was smaller or larger than expected
- Got married or divorced
- Had a child or adopted a child
- Purchased a home
- Had changes in jobs or income
- Received unemployment benefits
You can modify your paycheck withholding at any time during the year, or even multiple times within a year. To do so, you simply submit a new Form W-4 to your employer. Changes typically go into effect several weeks after a new Form W-4 is submitted. (For estimated tax payments, you can make adjustments each time quarterly estimated payments are due. The next payments are due on July 15 and September 15.)
Plan Ahead
There’s still time to make adjustments to minimize taxes due for 2020, as well as any penalties and interest. Contact us at our offices if you have any questions or need assistance. We can help you determine if you need to adjust your withholding