Check Your Tax Withholding Early This Year to Avoid Problems in 2020

Change Withholding Early for 2020
Change Withholding Early for 2020

 

Check Your Tax Withholding Early This Year to Avoid Problems in 2020

As mentioned many times, the Tax Cuts and Jobs act of 2017 could cause large unexpected changes for taxpayers going forward when they file their taxes in 2019 and 2020. The lowered tax rates, suspension of personal exemptions, near doubling of the standard deduction, increased Child Tax Credit, and limited/discontinued deductions are all responsible for the potential significant changes taxpayers may face.

Paycheck Checkup

In anticipation of these changes the IRS is encouraging taxpayers to review their tax withholding in case any adjustments are required.  Proactive taxpayers can save themselves from unpleasant surprises by using the IRS Withholding Calculator and make any needed adjustments early in 2019.

Withholding

In the U.S. taxpayers pay the tax as they earn or receive income during the year. This is known as a pay-as-you-go tax. Generally employers use withholding tables to determine how much tax to withhold from their employees’ paychecks.  This amount is then remitted to the IRS. Self employed individuals should make quarterly estimated tax payments to pay their tax during the year.  Be advised there are potential penalties for underpaying your estimated tax liability.

When to check withholding

Whenever a major life change occurs, such as marriage, childbirth, adoption, or buying a home, taxpayers should check up on their withholding.

If you were a taxpayer that adjusted your withholding in 2018 in anticipation of the TCJA changes, then it is especially important that you check your withholding – specifically if you made adjustments in the middle or later parts of the year. Taxpayers should also check their withholding if they a tax bill when they filed this year or want to adjust the size of their refund for next year.

Withholding Tables

A withholding table (skip to page 46 in the pdf) shows payroll service providers and employers how much tax to withhold from employee paychecks, given each employee’s wages, marital status, and the number of withholding allowances they claim.

While the IRS does make annual updates to the tables, unfortunately they cannot fully factor in all changes for all taxpayers, and only employees know other variables that can affect the tax they owe.

IRS Withholding Calculator

The IRS Withholding Calculator can help taxpayers get their tax withholding right. Taxpayers can choose to have less tax withheld upfront and receive more in their paycheck.  Alternatively some taxpayers may choose to have their employer withhold more money from their paycheck resulting in a larger refund.

When using the calculator, it’s helpful to have a completed 2018 tax return available.

Change Withholding By Submitting a New Form W-4

After receiving the results from the IRS Withholding Calculator taxpayers might consider if they should complete a new Form W-4, Employee’s Withholding Allowance Certificate. Employees submit the completed Form W-4 to their employer, not the IRS.

Individuals not subject to withholding should see Form 1040-ES for making estimated payments.

Need Assistance Adjusting Your Withholding? Have Questions?

At Horizon Expat Tax, We Can Help

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Any tax advice herein is based on the facts provided to us and on our interpretation of tax legislation as it reads at the time the advice is provided. Tax law is subject to continual change, at times on a retroactive basis and may result in incremental taxes, interest or penalties. We are not responsible for updating our advice for changes in law or interpretation after the date the advice is provided. Every tax situation is different. We are not responsible for the tax implications to any individual or entity that may act on this advice.