Should I Change My Withholdings for 2019?

Should I Change My Withholdings for 2019?

Should I Change My Withholdings for 2019?
While some individuals were pleasantly surprised by their tax results this year, others found themselves facing unexpected balances due or saw anticipated refunds at less than they had been counting on. Over the course of the past few months, we’ve had many conversations with clients that went something like this: “Well, your actual tax is pretty similar to last year, however, your withholdings have decreased quite a bit, so they no longer cover the tax balance as they have in the past.” In general, the response we get is, “Why is that? I haven’t changed anything!”

If you are employed, then your employer takes the information from your Internal Revenue Service (IRS) Form W-4 and applies it to the IRS’s withholding tables to determine the amount of income tax to withhold from your wages in each payroll period. Those tables remained fairly consistent for decades, and people came to expect a certain tax result. The Tax Cuts and Jobs Act, effective for the 2018 tax year, turned that expectation on its ear. One of the key impacts of the Tax Cuts and Jobs Act was an overall change in tax brackets and rates, which caused the Internal Revenue Service to update their withholding tables to account for the new rates.

This process did not work all that well in 2018 because, in the wake of the tax reform, the IRS did not have adequate time to properly redesign Form W-4 and adjust its withholding tables. In fact, the IRS has announced that this task will not be completed until it issues the 2020 versions of Form W-4 and the withholding tables. To add further complexity, the new withholding tables were only in effect for a portion of 2018, and they cannot account for the impact of tax reform on your personal situation, so other factors that may influence your return, such as whether or not you continue to itemize deductions and whether or not you are eligible for certain tax credits, can have a significant impact on the appropriate level of withholdings.

Now is the time to be proactive and make sure your withholdings are where you want them to be for 2019. Let us know if you’d like us to review your situation and current withholdings to make sure you’re on track.

DISCLAIMER:  Any accounting, business or tax advice contained in this communication, including any attachment hereto, is not intended as a thorough, in-depth analysis of specific issues, nor is it a substitute for a formal accounting or tax opinion, nor is it sufficient to avoid tax-related penalties.  If desired, Gerding, Korte & Chitwood, PC, CPA’s would be pleased to perform the requisite research and provide you with a detailed written analysis.  Such an engagement may be subject to a separate engagement letter that would define the scope and limits of the desired consultation services.
GKC Admin

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