Bobbi Jo Foster
Were you surprised by your reduced tax refund this year? Did you owe? Many taxpayers were surprised by the reduced refund or amount they owe to the IRS for their 2018 tax return. What taxpayers haven’t noticed is their total W-2 withholding is likely lower than previous years, therefore there is less Federal Tax to be refunded. You can use the tips in this article and learn how to set your withholding for your ideal tax outcome on next year's filing.
In 2018, the IRS changed the tax tables so less money was generally taken from each paycheck last year. The IRS said it wanted to bring taxpayers’ withholding closer to their actual tax liability. If you didn’t adjust your withholding, the good news is that you likely got bigger paychecks in 2018. The bad news is that the odds of getting a smaller refund or having to pay when you file your tax return went up.
The withholding tables, which went into effect last February, cannot take into account things like the size of your mortgage, how much you pay in state and local income taxes and property taxes or how many children you have in grade school. People were encouraged to adjust their withholding, based on their specific household, but most people didn't do it. Some people ended up withholding too little given their own tax situation.
How many allowances should you claim?
You filled out a W-4 when you started your job to essentially tell your employer how much Federal Tax to withhold based on the current tax tables. You can increase or decrease withholding at anytime by submitting a new W-4 to your employer.
By claiming zero allowances on your W-4, you would be withholding at the highest rate for your income range. Increasing the number of allowances, decreases the amount of tax withheld. Line 6 allows you to add an additional flat dollar amount to be withheld every pay.
The total allowances on your W-4 for all jobs should not exceed what you can claim on your tax return, otherwise your withholding will be too low and you will end up owing when you file your annual return.
If you have multiple jobs, you have the same number of allowances. You need to split your allowances across all of your jobs. So if you qualify for one allowance and work two jobs, one of your W-4 forms should claim one allowance, while the other claims zero.
The allowances a married couple claims should be split between the spouses and each job. For example, a married couple with no dependents should probably claim a total of two allowances. You need to split these allowances between all of your jobs. That could mean one of you claims two allowances while the other claims zero, or you could each claim one.
The BEST option is to get your most recent paystubs and use the IRS W-4 Calculator to make changes going forward. https://www.irs.gov/individuals/irs-withholding-calculator This is a bit time consuming, however it will help alleviate any surprises when you file your 2019 taxes. You may also contact your tax preparer and ask them to advise on how you should complete your W-4 since they will be aware of your specific tax situation.
Remember, if you are getting a large refund, you are essentially giving the IRS your money to hold interest free all year. At least if you owe, you had control of your hard earned income all year. Either way, your total tax liability is the same. It’s the credit towards paying it that changes based on your withholding.
NEW BLOOMFIELD OFFICE
Robert W. Morris & Company, PC
19 E Main St, PO Box 68
New Bloomfield, PA 17068
M - Thursday 8:00 am - 5:00 pm
Friday 8:00 am - 12:00 pm
WEST SHORE OFFICE
Robert W. Morris & Company, PC
510 N Front St
Wormleysburg, PA 17043
M - Thursday 9:00 am - 4:30 pm