By: Dan Thrailkill and Rich Toomey
It is interesting to us how often we hear comments like “the Jones family got a huge refund and paid for an entire vacation” or “the Jones Family paid for their new patio with their tax refund.” What happens if the Jones family doesn’t get a huge refund this year? Have they done their tax planning to take into effect the new tax law and withholding tables?
Effective February 15, 2018, the IRS mandated that companies implement the 2018 withholding tables for employees. You may have noticed your paycheck bumped up a bit, meaning you are taking home a little more money. That’s great news! Who doesn’t like to take home more money? This extra cash flow does present a potential problem though: those additional funds you are taking home now may come back to haunt you in April of 2019. After all, that new money has to come from somewhere. Guess where the additional money comes from? That’s right. It comes from you. The additional money taken home means less withholding from your paycheck.
Now would be a prudent time to take a look at your withholdings for the remainder of the year. There is still time to adjust your withholdings to ensure that they are in line with expectations come April of next year.
Consider revisiting your Form W-4 on file with your employer. If you don’t remember what this form is, it was one of the many documents you hastily filled out during the first week of your job. That W-4 may have provided you with sufficient withholding for previous tax years, but that may not be the case in 2018.
Individual rates have gone down, the standard deduction has increased, certain itemized deductions have been capped or eliminated, personal exemptions are gone, and the child tax credit has been increased and expanded. The average effect of these changes decreases your withholding and increases your net pay. However, it would be ill-advised to assume you still have sufficient withholding.
Take a few moments and review your most recent pay stub. The IRS website has a W-4 calculator (www.irs.gov/W4App) that provides step by step instructions to determine how many allowances you should be claiming on your 2018 W-4. If you find the calculator to be too complicated or time-consuming consider reaching out to your tax accountant and have them review your W-4 filing for you. It can’t hurt to have professional advice when being wrong could cost your family a vacation or a new patio.
DANIEL J. THRAILKILL, CPA is a director in Ellin & Tucker’s Tax Department with nearly two decades of tax planning, compliance and consulting expertise. He is one of the firm’s foremost advisors regarding tax-efficient investment strategies and financial tools designed to meet the needs of privately held business across a multitude of industries, as well as high net-worth individuals. He can be reached at firstname.lastname@example.org.
RICHARD S. TOOMEY, II, CPA, MSA is a supervisor in Ellin & Tucker’s Tax Department. His involvement with many of the firm’s most comprehensive tax engagements makes him well-versed in important tax-related topics and changing tax regulations. He can be reached at email@example.com.