Tax advice regarding your W-4 (Federal Withholding)
I am preparing tax returns and seeing a pattern emerging.
Ever since Congress directed the IRS to change the W-4 form, people have been seeing smaller refunds and in many cases owing taxes for the first time.
There is no longer the simple option of “claiming zero” to have the maximum taxes withheld (and even if that option were available, the withholding tables for employers have also been changed.)
My suggestion, based on analysis (so far) of returns this year, is as follows:
1. If you have been receiving refunds of more than $2,000 you are probably ok unless your income has recently increased above $55,000 (for a single person) or $110,000 (married filing jointly). Make no changes unless the second situation applies to you and/or your refunds are lower than $2,000.
2. If you are in the possible danger zone described above, do the following:
a. Look at the gross income received on your last paycheck
b. Multiply that by 3%
c. As long as it does not cause you financial hardship, turn in a new W-4 form to your payroll department. On line 4(c), write the number from the above 3% calculation. If that’s too much, 2% may be enough. Have as much extra as you can afford taken out.
If married filing jointly, both spouses should do the same thing. If you have more than one job, you should use the multiple jobs worksheet - but even in this case, you may wish to increase the amount on line 4(c) above what the table recommends.
Keep in mind that new W-4’s can be turned in anytime throughout the year, as often as needed.
Good luck!
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