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August 07, 2019 | Posted in:

A Better Tool for Checking Your Withholding

The IRS just launched a new Tax Withholding Estimator on its website.  This new tool is completely redesigned and much more user-friendly than the old version.

Why should I check my withholding?

After the new tax law took effect for 2018, many people were unpleasantly surprised when they didn’t receive their customary tax refund on their 2018 tax returns.  Often, they actually paid less tax overall but didn’t really notice it because they took home a little more from their paychecks each week (which means there was less withholding), and then were shocked to find out they weren’t getting a big refund or that they owed more tax on their returns.

See:  What Does “Check Your Withholding” Really Mean?

Doesn’t everyone want a big refund?

Remember that a tax refund isn’t simply a gift from your generous Uncle Sam.  A tax refund is just your own money coming back to you because you paid in too much during the year.  You really gave the government an interest-free loan all year.  If you see a tax refund as a way to force yourself to save money, consider having part of your take-home pay automatically deposited into a savings account instead.

Should I just wait and pay in all my tax with my tax return each year?

If the idea of giving an interest-free loan to the government disturbs you, you might be tempted to wait and pay in all of your tax burden for the year on April 15th when you file your tax return.  This is technically allowed, but you will also incur penalties for not paying in your tax evenly throughout the year.  Ideally, your withholding or estimated payments should approximate your actual tax burden, and there should only be a small amount due or refund on your tax return.

Why is the new IRS tool better?

The previous withholding calculator was somewhat difficult to use.  There were lots of questions that required you to gather all sorts of information.  It essentially amounted to doing your own tax projection, which is not something most people are equipped to do.  The new tool uses very plain, clear language and asks questions in a logical order.  You will need to have a year-to-date check stub for all jobs (the taxpayer and the spouse, if applicable).  Answer the questions as you work through the tool.  When you get to the end, you can go back and change your answers if you want to.

See: A New Form W-4 for 2020

What does the tool tell me?

The results will indicate your total expected withholding, your anticipated tax obligation, and the resulting estimated refund or balance due.  If you don’t like your results, you can select an option to “get my balance close to zero” or “I’d like to get a refund.”  The tool will then tell you how to complete a new Form W-4 for each job in order to achieve the desired result.  Just remember that the accuracy of the results will depend upon the accuracy of the answers you supply.  If you have a complicated tax situation or if you own your own business, you probably still need the help of a professional.

 

Contact Alloy Silverstein for a tax planning appointment today.

Author:

Associate Partner
 
Julie has over 20 years of experience in public and private accounting, representing varied clientele including the medical, legal, and real estate industries and trusts.
View Julie's Bio →

JB Financial Associates is now Alloy Silverstein.
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