So what exactly have you done to withhold more money out of your paycheck to cover that 2019 tax bill?
If you need a motivator, the Internal Revenue Service has launched its much-anticipated new Tax Withholding Estimator. The calculator reportedly makes it “easier to enter wages and withholding for each job held by the taxpayer and their spouse, as well as separately entering pensions and other sources of income.”
Stepping back to fine tune how much money you’re withholding in taxes now can make a huge difference between dreading having to write a big check to pay taxes in April or actually looking forward to getting a tax refund.
The estimator, which replaces the old IRS online tax withholding calculator, should help you see how on track you are right now. If necessary, you could make adjustments and dedicate more or less money toward federal income taxes out of your paycheck, and your spouse’s paycheck, too.
Many people found the old calculator to be a more than a bit cumbersome, but the new estimator is getting some good reviews. So it’s clearly worth a look.
See www.irs.gov and click on “Tax Withholding Estimator.”
Why do I need to think about taxes now?
Getting your withholding right, of course, takes on greater importance after a rather unsettling tax season earlier this year when many taxpayers ended up paying more than expected or took home far smaller tax refunds than usual.
If you’re working in the gig economy and juggling more than one job, the new program can take that into account, too.
Remember, take-home pay went up in 2018 once withholding tables were adjusted to reflect the lower tax rates in the Tax Cuts and Jobs Act of 2017.
For some tax filers, though, the extra money that ended up in their paychecks turned out to be even more than the amount their taxes would have gone down under the Tax Cuts and Jobs Act, according to H&R Block data.
Were you upset by a smaller tax refund?
Under the new tax rules, some people lost key tax benefits. Maybe your children are 17 or older and you don’t get as big of a tax break. Maybe you now can only deduct up to $10,000 — and no more — for the money paid for state income taxes, local taxes and property taxes.
If your tax story fell into one of those buckets, you could have faced more significant swings than the averages would indicate.
The average tax refund was $2,729 this year through May 10. That’s down 1.7% from a year earlier. The total amount of refunds was down 2.7% for that same time frame, totaling $277.26 billion through May 10. That’s the latest IRS information available; other statistics will be released later in the year.
While only a few months remain in 2019, it is still possible to have more money taken out of your paycheck to cover income taxes now to avoid unwelcome surprises in 2020.
How does this estimator work?
The IRS online estimator is broken into six sections — information about your household, income, adjustments to your income, deductions from income, tax credits and your results.
You need some paperwork on hand — such as your most recent pay stub and pay information for your spouse. You must know how much in taxes has been withheld already; how much you plan to contribute to your tax-deferred 401(k) plans this year.
You can be more detailed by entering any adjustments to income. But that’s not required. The IRS site notes that most taxpayers don’t have a large enough adjustment to have a significant impact on their tax obligation. Adjustments could include a student loan interest deduction, alimony paid that could be deductible for some in many cases and other factors.
What do you do next to update your W-4?
The online tool gives you step-by-step instructions for how to fill out a W-4. And you’re easily able to download a blank W-4 to give to your employer.
If you want to withhold more money in taxes, you need to fill out that W-4 and give it to your employer.
If you have any questions on what to expect about your 2019 tax filings, click here to speak to one of our tax professionals.
Source: MSN Money