The IRS is urging all employees, especially two-income families and folks who work multiple jobs, to complete a paycheck checkup to verify that they’re withholding the right amount of tax from their paychecks. This is important every year, but especially this year, as the tax reform package may have changed your situation.
Meanwhile, some experts are predicting that many employees are having too little withheld and may face a tax bill when filing in 2019. What should your next step be?
- Go to the IRS Withholding Calculatorto navigate the complexities of multiple employer tax situations and determine the correct amount of tax for each employer to withhold. It takes into account multiple jobs and two-income families.
- Check your status regarding the following items: the increased standard deduction, the elimination of personal exemptions, the increased child tax credit, other limited or discontinued deductions, and changed tax rates and brackets.
- Submit a new Form W-4. This is the form that tells your employer how much to withhold from your paycheck.
Indeed, Form W-4 is key to proper withholding. Most people submit one when they start a new job and then forget about it. But you can, and should, fill it out as often as necessary, i.e., whenever there is a life change. (Note that the IRS may be issuing a new Form W-4 later this year, and it may be very different from the current one.)
Here are the key issues to consider when filling out Form W-4:
- Generally, the fewer withholding allowances an employee enters on Form W-4, the higher the tax withholding.
- Entering 0 or 1 on line 5 of the W-4 means more tax withheld.
- Entering a larger number means less tax withheld, which would result in a smaller tax refund, or potentially a tax bill or penalty.
- Not having enough taxes withheld can occur when you get married or divorced, have a baby, or finally get that empty nest you dreamed about during your children’s teenage years.
- One of the most common under-withholding situations is the second-job scenario. To help you avoid the dreaded owe when you have two jobs, be sure to take into account second jobs and other special situations so there are no unpleasant surprises next April.
Does this sound confusing? It is, this year more than in any in recent memory. If you’re unsure what your status is, give us a call and we’ll help you figure it out. The sooner you do it, the better chance you have for good news when April 15 rolls around.