Not to be a killjoy after you already went and splurged on extra holiday gifts this season, but you may want to take a moment to give the withholdings on your W-4 forms a quick checkup.
If you’ve already gone to your employer and completed this task, good on you — carry on! But if you missed the word this spring that the IRS recommends all taxpayers take time to make sure enough is withheld from their paychecks to cover this year’s tax obligations, you may be in for a costly surprise this April. You may end up owing money on your federal taxes.
How did this happen?
It was almost one year ago when Congress passed the Federal Tax Cuts and Jobs Act, with the aim of simplifying the tax code by eliminating a number of personal exemptions, doubling the standard deduction and lowering income tax rates. That’s where the confusion may be coming in. On one hand, the lower rate may have caused a slight boost in your take-home pay. But when you sit down to do your taxes, you may discover that it all adds up to too little withheld from your paycheck.
The federal Government Accountability Office estimates that as many as 30 million Americans (21 percent) will owe on federal taxes in 2019 because they haven’t adjusted the withholdings on their paychecks. The IRS recommended that the following types of households revisit their tax withholdings:
- Hold two or more jobs (especially in the gig economy)
- Have children or dependents
- Itemize deductions
- High incomes
- Complex tax situations
But there’s a silver lining in all this. You may be among the 75 percent of taxpayers who will be getting a refund, according to the GAO.
If you still need to learn whether you’ll end up owing Uncle Sam this spring, the IRS has an online calculator to help you figure out if your withholdings are at the correct level. To help you enter all the right data, you’ll need your most recent pay stubs, but some of the information in last year’s tax forms can also serve as a guide.
What’s next? If the IRS’s withholding calculator shows that your W-4 withholdings are out of balance, the next step is to contact your employer’s HR or payroll department. Even though it’s late in the year to make up for the upcoming tax season, making the change now will help you get 2019 off to the right start.