How Now, W-4?

Your old W-4 form, which determines how much federal and state tax is withheld from your paycheck, might be yesterday’s news now.

Federal tax reform is taking effect this year, and it promises to revamp tax returns with higher standard deductions, new tax brackets, boosts in Child Tax Credits and cuts in deductions, among other alterations.

That could bring good or bad news for individual returns, depending on your circumstances. Clearly, some taxpayers will want to tweak their W-4s to avoid withholding too much – or, worse, too little – of their income for Uncle Sam before Tax Time.

Do you need to take a second look? The Internal Revenue Service says taxpayers with relatively simple returns should not have to adjust. That’s because the agency adapted its 2018 withholding guidelines to fit the new tax atmosphere. The IRS says a simple situation might be a single person or married couple with one job, no children, no itemized deductions and no tax credits.

On the other hand, many taxpayers with more complex returns probably could use a W-4 checkup. They might be families with two or more paychecks, with high incomes or with children eligible for the Child Tax Credit, the IRS suggests. Likewise, taxpayers who received large refunds or who itemized deductions on their 2017 returns might be wise to review their W-4s.

The IRS also is helping taxpayers crunch their numbers with an updated Withholding Calculator. It’s available online at https://www.irs.gov/individuals/irs-withholding-calculator People with the more complicated situations might have to dig into Publication 505, called “Tax Withholding and Estimated Tax,” the IRS says. Think about returns with capital gains, self-employment income, part-year jobs and the alternative minimum tax, to name a few scenarios.

Withholding too much from paycheck can lead to a hefty refund, which amounts to a loan to the government. A large refund — let’s say in thousands of dollars — also might take longer to process because of IRS anti-fraud reviews.  On the other hand, withholding too little can expose taxpayers to penalties, the IRS warns. EricJohn Ltd. proprietor Eric Buechler can help you figure out the right balance point for withholding as the Tax Cuts and Jobs Act takes effect.

Soon taxpayers will be able to work ahead, too. The IRS is rewriting the Form W-4 and its instructions for the 2019 tax year. The agency has released an early draft online at https://www.irs.gov/pub/irs-dft/fw4–dft.pdf

More radically, the Form 1040 also is back at the drawing boards. The IRS Is overhauling it for 2019, saying the latest version will be about half the size of the current 1040. The feds’ idea is one 1040 to be used by all 150 million taxpayers instead of the current three versions.

This entry was posted in EricJohn Ltd. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *