There have been numerous changes to the tax code in the past two years that affect Americans. Were you surprised by your 2018 tax return? My clients frequently said their paycheck withholdings were insufficient and resulted in refunds that were smaller than anticipated. Due to changes in tax withholding rates and limited deductions, the Tax Cuts and Jobs Act of 2017 created situations like these for countless taxpayers. Previously, many taxpayers received refunds due to excess withholding.
A new tool is designed to help: the IRS Tax Withholding Estimator. This tool allows you to review your withholding amounts to determine whether you want to make changes. The estimator can be found at the IRS website, https://www.irs.gov/individuals/tax-withholding-estimator. You’ll be able to see your results in minutes and decide whether to change your current withholding allowance with your employer.
What You Need
The IRS recommends gathering the following before using the estimator:
- Recent pay stubs.
- Most recent income tax return.
Be ready to answer questions about your tax filing status, dependents, pretax contributions (such as retirement or medical accounts), other sources of income, and tax credits.
The estimator will take you through questions that vary depending on whether you itemize or claim the standard deduction. To find out which items can be deducted, review IRS Topic No. 500 at https://www.irs.gov/taxtopics/tc500. If you plan to itemize deductions, gather the following:
- Medical and dental expenses.
- Taxes paid.
- Qualified mortgage interest paid.
- Gifts to charity.
- Casualty losses.
- Other expenses that could be deducted.
The estimator will not ask for personal-identification information, such as name, date of birth, social security number or bank account numbers. The estimator will not save the information you enter. It is a single-use calculator.
Once you’ve completed the questions, the estimator will calculate whether you’re estimated to owe money or receive a refund for the 2019 tax year. The estimator will give you two options for adjusting your withholding:
- Get My Balance Close to Zero.
- I’d Like to Get a Refund.
Based on your selection, the estimator will explain how to fill out a new Form W-4 and provide a link to the form. Once you download and complete Form W-4, print it and give it to your employer. Your paycheck withholdings will be adjusted accordingly.
The IRS recommends reviewing your selections again in 2020.
Robert DeHollander, CFP® is a managing partner and co-founder of the DeHollander & Janse Financial Group located at 3515 Pelham Road, Suite 100, Greenville, SC, 29615. Ph: 864-770-0220, www.djfinancial.com
Securities and advisory services offered through Commonwealth Financial Network®, member FINRA/SIPC, a Registered Investment Adviser.