Hi Everyone –
This month’s newsletter will discuss using the IRS Tax Withholding Estimator to ensure you have enough withholding throughout the year to cover any tax due.
IRS Tax Withholding Estimator:
We encourage everyone to use the Tax Withholding Estimator to perform a quick “paycheck checkup.” This is even more important following the recent changes to the tax law for 2018 and beyond.
The Estimator helps you identify your tax withholding to make sure you have the right amount of tax withheld from your paycheck at work.
There are several reasons to check your withholding:
- Checking your withholding can help protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time next year.
- At the same time, with the average refund topping $2,800, you may prefer to have less tax withheld up front and receive more in your paychecks.
The Estimator will ask you to estimate values of your 2019 income, the number of children you will claim for the Child Tax Credit and Earned Income Tax Credit, and other items that will affect your 2019 taxes. This process will take a few minutes.
- Gather your most recent pay stubs.
- Have your most recent income tax return handy; a copy of your completed Form 1040 will help you estimate your 2019 income and other characteristics and speed the process.
- Keep in mind that the Estimator’s results will only be as accurate as the information you provide. If your circumstances change during the year, come back to this Estimator to make sure that your withholding is still correct.
- The Tax Withholding Estimator does not ask you to provide sensitive personally-identifiable information like your name, Social Security number, address or bank account numbers. The IRS does not save or record the information you enter on the Estimator.
Adjusting Federal Withholding:
Employees who need to complete a new Form W-4 should submit it to their employers as soon as possible.
As a general rule, the fewer withholding allowances an employee enters on Form W-4, the higher their tax withholding. Entering “0” or “1” on line 5 of the W-4 means more tax withheld. Entering a larger number means less tax withholding, resulting in a smaller tax refund or potentially a tax bill or penalty.
We do caution about claiming exempt during the year, particularly if a client is doing so in anticipation of claiming the foreign earned income exclusion because if, for any reason, the client becomes unable to qualify to make the claim, a large and unexpected tax bill will be the result. In addition, depending on total income, the foreign tax credit may not cover all tax due at the end of the year.
What About State Withholding?
Depending on your tax profile, your withholding allowances may be the same or different for state purposes compared to federal. Most states allow the foreign earned income exclusion while just a few states allow the foreign tax credit.
If you have specific questions about your federal or state withholding, please contact us. We can put together a projection for 2019 if you need assistance or would like more exact results.
As always, thank you all for your continued support and we appreciate the opportunity to do business with each of you.