It is always a good idea to examine your tax exposure once per year as you complete your taxes. Changes to the tax law for 2018 have prompted many taxpayers to ask, “Am I having enough money taken out of my paycheck?” Now is the time to examine your tax withholding.
In February of this year, you may have noticed an increase in your take home pay. In fact, ADP has recently reported that a person filing as an individual making $57,000 per year with one withholding allowance and a 5% 401(k) contribution would see a bump of about $60 every two weeks.
Why? The tax withholding tables were changed. The problem is that your employer is using your old withholding numbers which were based on the old law. Now, under the new tax law, the withholding may not be enough and you could wind up owing money next year or seeing your refund lessened.
We can walk through this change with you in great detail, but you should start using the new IRS calculator.
We know this is confusing and we are here to help you. We highly recommend sitting down with us for a consult to review your current tax situation and exposure. We can take a look at your current pay stub and 2017 taxes, and with a bit more information, we can determine if you need to make any changes based on the new tax law.
What should you do if you want to change your withholding? You will need to submit an updated W-4 form to your employer.
Your paycheck withholding is based on personal preference. Some of our clients like to withhold as little as possible so they have the money to use and invest throughout the year. They believe that a tax refund is a loan you give to the government.
However, many Americans look at their withholding as “forced savings” and withhold more than necessary. They are counting on a big refund from Uncle Sam come tax time.
We want to make sure you are comfortable with your decisions and take an active role in your tax situation.