ADJUST YOUR WITHHOLDING
If you were like a lot of taxpayers last year, you were surprised when you filed your tax return because
you didn’t get that refund you expected, you owed with your 2018 return. In many cases, your income
had not changed substantially. What changed was your withholding. The 2017 Tax Act made substantial
changes to tax law and the IRS wanted folks to get the advantage of the changes early, so they changed
withholding during 2018. Many people were happy with the change made in early 2018 because it meant
more money in their pocket with the withholding decrease. This meant a bigger paycheck. But the IRS
made a mistake and were a bit too gracious in calculating the withholding, so many didn’t have enough
withheld to cover their tax liability. Even though you probably paid less tax in 2018 versus 2017, that tax
bill to cover the shortage in withholding didn’t make you feel any better.
This problem didn’t really come to light until about this time last year as people started filing their 2018
returns. The IRS attempted to correct the problem by issuing a new W‐4, which is the form employees fill
out to adjust their withholding. But the 2019 version of W‐4 had problems and was soon pulled. Hopefully
your withholding will be enough to cover your 2019 tax liability.
The IRS recently issued the 2020 version of W‐4. The 2017 Tax Act eliminated Personal Exemptions,
which have been the basis for withholding for years. Now the W‐4 embraces the elimination of
exemptions and asks questions like your expected filing status, family income from other jobs, number
of dependents, and tax deductions you plan to claim. Once your employer has the necessary
information, the company will take it from there and do the necessary calculations.
If you’re already employed, you aren’t required to fill out a new W‐4. However, if you want to adjust
your withholding, or you start a new job, you will need to fill out the new form. And it’s a pretty
intimidating form at first glance, with its four pages of fine print. The meat of the form is just a few lines.
If you are the only person in your household that works outside the home, it’s actually pretty simple. But
no matter the situation it does seem to accomplish its job as intended. Just take your time, read each
line or question, and answer as it relates to your situation, and you should get the desired result.
How do you know if your withholding is adequate without waiting until tax time? That’s actually pretty
easy – just project your income and withholding and see if you’re having enough withheld. Tax time is
the ideal time to do that because you’re in tax mode, and if you find out you need to adjust your
withholding, you have plenty of time to correct a problem.
If you need help with projecting your income and withholding, or if you have questions about how to
correctly fill out the new W‐4, please call our office. And as always, I am looking for article ideas that you
would like me to cover. If you have an idea for a future article, or just have a topic you would like more
information on, please send me an email.