August 27, 2019

2018 Tax Filing Data Shows Need to Review Withholding

By Richard J. Schillig, CLU, ChFC, LUTCF
Independent Insurance and Financial Advisor

The IRS continues to encourage taxpayers to review the amount of tax they have withheld to avoid an unexpected tax surprise when filing 2019 tax returns. Preliminary 2018 tax filing data seems to show the need for taxpayers to review their withholding in order to make sure the appropriate amount of tax is being withheld to reflect recent tax law changes.

The Tax Cuts and Jobs Act made significant changes to the tax code and 2018 was the first time taxpayers filed with the new rules. Among other changes, the legislation modified individual income tax rates and brackets, eliminated the
personal and dependency exemptions, raised the standard deduction amounts, limited certain deductions (including the deduction for state and local taxes), increased the child tax credit and its phaseout thresholds, added a credit for other dependents and increased the alternative minimum tax
exemptions amounts and the exemption phaseout thresholds.

Preliminary data for the 2018 tax year shows that more than 106 million federal income tax individual returns resulted in refunds, with the average refund of $2,879. Over 24 million individual returns showed tax due at the time of filing averaging $5,160. Because of the difficulty, many taxpayers seemed to have with their 2018 tax year withholding (some may not have realized changes were needed), the IRS waived certain penalties for many 2018 tax returns. It is important that we get withholding right for 2019 while there still may be time for any adjustments to take effect.

If too much tax is withheld, as you know you will receive a refund when you file tax return, but it might make more sense to reduce your withholding and receive more in your checks. If you have too little tax withheld you will owe tax when filing 2019 return. AND you may be charged a penalty. You can generally change the amount of federal tax you have withheld by completing a new Form W-4. A number of worksheets for the Form W-4 or the IRS Withholding calculator is available at www.irs.gov.

If changes reduce the number of allowances you are permitted to claim or your marital status changes you must provide a new Form W-4. You can generally submit a new Form W-4 whenever you wish to change withholding allowance for any other reason.

In general you can claim various withholding allowances on the Form W-4 based on your tax filing status and the tax credits, itemized deductions (or any additional standard deduction for age or blindness) and adjustments to income that you expect to claim. You may increase the tax withheld or claim fewer allowances if you have a large amount of non-wage income. (If you have a significant amount of non-wage income, you may consider making estimated tax payments using IRS Form 1040-ES). The amount withheld can also be adjusted to reflect if you

have more than one job at a time and whether both you and your spouse work. You might reduce the amount of tax withheld by increasing the number of allowances you claim (to the extent permissible) on Form W-4.

You can claim exemption from withholding for the current year if: (1) for the prior year, you were entitled to a refund of all federal income tax withheld because you had no tax liability; and (2) for the current year, you expect a refund of all federal income tax withheld because you expect to have no tax liability. If you need help, talk to a tax professional about your individual situation.

We continue our monthly Community Meetings for persons aging into Medicare next month or next several months. August 20 we review the Basics of Medicare and focus on the Medicare Supplement Plans. Two days later August 22 we review the Basics of Medicare and focus on the alternative to Original Medicare with the Medicare Advantage Plans……particularly the United Healthcare Plan AARP Medicare Complete Plan. Both meetings begin at 10 AM at our agency office in Bettendorf. Call for reservation for one or both meetings 563.332.2200.

Richard J. Schillig, CLU, ChFC, LUTCF is an Independent Insurance and Financial Advisor with RJS and Associates, Inc. He can be reached at (563) 332-2200.

Filed Under: Finance, Retirement

Trackback URL: https://www.50pluslife.com/2019/08/27/2018-tax-filing-data-shows-need-to-review-withholding/trackback/