Paycheck Checkup: Are You Withholding Enough Tax or Too Much?
IRS Releases NEW Withholding Estimator
Did you receive a big refund or have a large tax payment due last year? Was there a major change in your life this year? It’s a good practice to review whether you’re withholding enough tax from your paycheck. The IRS encourages everyone to look at their withholding by performing a “paycheck checkup” every year, but what makes this year different? Using the newly redesigned IRS Tax Withholding Estimator, more taxpayers can perform paycheck checkups more easily than ever before!
What’s New: Redesigned IRS Tax Withholding Estimator
For years the IRS Tax Withholding Estimator has had a clunky, outdated interface. Some of the most welcomed changes include:
- Questions that are easily understandable. That’s right, you won’t need a four-year degree in accounting to understand the questions!
- Increased taxpayer groups. The withholding estimator is targeted toward a wider group of taxpayers, including workers with multiple jobs, retirees, and self-employed individuals.
- Correction functionality. You are now able to go to previous questions and change your answer, all without having to answer every question over again.
- User-friendly and mobile-friendly. The overall layout is user-friendly, and yes, the website even works well on smartphones!
Will the New Withholding Estimator Work Well for My Tax Situation?
Every tax situation is unique, but generally, the withholding estimator performs best for any combination of the following:
- Wage earners (receive a single or multiple W-2s)
- Receive Social Security benefits (receive form SSA-1099)
- Receive interest or dividend income
- One source of rental income
- Claims dependents
- Claimed standard or itemized deductions in 2018
- Claimed tax credits in 2018
Even with all the improvements, the withholding estimator is still inaccurate for complex tax situations. It is recommended to contact your Adams Brown advisor if you have any of the following:
- Multiple sources of rental income
- Business income reported on Schedule C
- Farm income reported on Schedule F
- Rentals or businesses which incur losses
What is Needed to Complete the Withholding Estimator?
Thankfully, the tax withholding estimator will not ask you to provide sensitive personally-identifiable information like name, address, Social Security number, or bank account numbers. Before starting the withholding estimator, you should have your 2018 tax return and most recent paystub available. Click here to visit the Tax Withholding Estimator.
The accuracy of the estimator depends entirely on the information provided. These documents are only to be used as a reference for answering questions. The 2018 tax return will be used to estimate credits and deductions you will claim on your 2019 tax return. The most recent pay stub will give an accurate withholding amount so far in 2019 and will be used to estimate withholding at the end of the year.
I Completed the Withholding Estimator. Now What?
The withholding estimator will calculate the amount of refund or tax due. If you are unhappy with the results, then you should adjust your withholding. To do this you will need to complete Form W-4, Employee’s Withholding Allowance Certificate and give to your employer.
As always, please contact your Adams Brown advisor for questions or more information.