New Federal Withholding Tables Could Cause You to Owe Money Come April 15, 2019
One of the basic themes associated with the new tax law was to put more money in the pocket of the taxpayer. In order to meet that goal as quickly as possible, the Internal Revenue Service is revising the income tax withholding tables. It is planned for these tables to be available as early as next month. With that most of us will see an increase in our pay checks.
So that was the good news.
The issue at hand will be whether your revised withholding accurately reflects your tax liability. There will be a new W-4 released that will attempt to align your withholding with your tax obligation, but you may not get the chance to complete that form before the new withholding tables take effect and we are not certain the form will accurately account for your specific situation. Here are a few things to consider:
- The reduction in the state, local and real estate tax deduction.
- The increase in the alternative minimum tax deduction.
- The expanded child care credit.
- The loss of the exemption deduction.
- The loss of miscellaneous itemized deductions.
- The increase in the standard deduction.
- The reduction in the withholding on bonus and stock option payments.
- A significant increase/decrease in your income or of your spouse’s income.
As indicated above, these are just a few things than can affect your tax liability. In addition, if you live in a state that calculates its taxable income based on your taxable income as reflected on your federal return, you may be under withheld at the state level as well.
One last thing. The effect can swing both ways and as such you may end up over withheld as well. Not as bad as compared with being under withheld however, you may prefer to have the money now versus a larger than expected refund on April 15, 2019.
What to do?
Our suggestion is to complete a new W-4 when they are released and see what the impact is on your federal and state withholding. Once you have that information, we would urge you to prepare a quick tax projection based on the new tax law. The result of that projection will tell you if your withholding is on target or that an adjustment is needed.
We are available to help with that tax projection. So please, contact us.