Take the Guesswork Out of Paycheck Tax Withholding
The Tax Cuts and Jobs Act of 2017 brought many changes to the tax law, including reduced tax rates, elimination of personal exemptions, increased standard deductions, increased child tax credits and changes to itemized deductions.
Did you have to pay tax for 2018 when you received refunds in the past? Having too little withheld can result in an unexpected tax bill or even a penalty, while having too much withheld results in less money in your pocket. The good news is, the new year just started, which means doing a paycheck checkup using the IRS’ Withholding Estimator now could help you avoid taking a hit next year. This tool helps you avoid having too much or too little tax withheld from your wages. It also helps those working for themselves make accurate estimated tax payments.
A paycheck checkup is especially important if you:
- had a large tax refund or tax bill when you filed your 2018 return.
- adjusted your tax withholding in the middle or later part of 2019.
- had a major life change this year.
- are a two-income family.
- have two or more jobs at the same time or only work part of the year.
- claim credits such as the Child Tax Credit.
- have dependents age 17 or older.
- itemized deductions in the past.
- have high income or a complex tax return.
Reviewing withholding is especially important if you did a checkup in 2019 and adjusted your withholding during the middle or late in the year. Another review now can help ensure you have the right amount withheld for 2020.
You can use the results from the Withholding Estimator to determine if they should:
- Complete a new Form W-4, Employee’s Withholding Allowance Certificate, and submit it to their employer.
- Complete a new Form W-4P, Withholding Certificate for Pension or Annuity Payments, and submit it to their payer.
To use the calculator, you will need your most recent paycheck stubs and a copy of your most recent income tax return. The results will only be as accurate as the information provided, so if your circumstances change anytime during the year, you should revisit the calculator to ensure your withholding is still correct.
It will tell you if your withholding is short or if you are withholding too much, so if you need to adjust your withholding, instructions for changing your withholding is provided on the website.
The calculator does not ask you to provide sensitive personally identifiable information such as your name, Social Security Number, address or bank account numbers, nor does the IRS save or record the information you enter.
Before using the estimator, you should gather their most recent pay stubs and income documents from all sources. Documents related to pensions, annuities, Social Security benefits and self-employment income are also important to have on hand, in addition to a copy of your 2019 federal tax return, to help estimate 2020 income and answer other questions asked during the process.
About Ericksen Krentel
Ericksen Krentel CPAs and Consultants, founded in New Orleans, Louisiana in 1960 with offices in New Orleans and Mandeville, believes that serving as the clients’ most trusted adviser is grounded in going beyond the numbers.
That includes helping clients achieve their business and personal financial goals by providing innovative and exceptional services in the following areas: audit and assurance services, tax compliance and planning, outsourced CFO services and business valuations for a variety of industries; employee benefit plan audits; fraud and forensic accounting; business planning; IT consulting; loss calculations; and estate planning.
Learn more at www.ericksenkrentel.com.