By: Rich Toomey and Dan Thrailkill
This piece is a follow-up to 2018 Withholding: Don’t Let Time Run Out published on the Ellin & Tucker website in September 2018
As you begin to take a first glance at your 2018 taxes, you may find that you’re under-withheld this year. Don’t worry though, you aren’t alone. An estimated 30 million Americans are in the same situation and it’s not entirely the taxpayer’s fault. The IRS released new withholding tables in February of 2018 that reflected some changes in the new Tax Cuts and Jobs Act (TCJA) like lower rates and doubling the standard deduction. But they failed to account for other changes such as the suspension of dependency exemptions and reduced itemized deductions.
To make up for their error, the IRS is offering relief for some taxpayers. In Notice 2019-11, the IRS said it would generally waive the underpayment of taxes penalty for those who pay at least 85-percent of their 2018 tax liability through withholding and estimated tax payments. Usually, taxpayers need to pay at least 90-percent of the current year liability to avoid underpayment penalties. The penalty waiver won’t change the fact that a taxpayer is under-withheld, but the lower threshold will save some taxpayers from penalties when they pay their liability in April.
While it’s too late to do anything about your 2018 tax withholdings, it’s never too early to look at 2019. Consider reviewing your most recent pay stub and 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. Additionally, the IRS has provided a W-4 calculator on their website that provides step by step instructions to determine how many allowances you should be claiming on your 2019 W-4. If you find the calculator to be too complicated, time-consuming, or simply intimidating, there’s always another solution: contact a professional tax accountant and having them review your W-4 filing for you.
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 regulations. He can be reached at firstname.lastname@example.org.
DANIEL J. THRAILKILL, CPA is a director in Ellin & Tucker’s Tax Department with nearly two decades of tax planning, compliance and consulting expertise for privately held businesses and high net-worth individuals. He can be reached at email@example.com.