Why Less Withholding Now May Result In More Tax Next Year
With all of the tax reform changes and the corresponding reductions in most taxpayers’ income tax withholding, there are serious concerns that the reduction in withholding, although providing more take-home pay now, could end up resulting in unexpected taxes due at tax time next year. For that reason, taxpayers should be overly cautious about their payroll withholding for 2018. One need only look at the W-4 instructions to realize that an individual without any substantial tax training can quickly become lost when filling out the worksheets. It is not business as usual.
What adds to the problem is that many taxpayers count on a refund to pay property taxes, insurance, and other large expenses. The W-4 worksheets are designed to withhold the correct amount of tax with no substantial refund, and many tax practitioners are reporting that clients’ withholdings for 2018 have been reduced to seriously low amounts.
In other years, most taxpayers can look at the tax from their prior year’s return and compare it to their projected payroll withholding to see if their current withholding amount is appropriate. But that’s not the case for 2018, since the tax computation has been substantially altered. Taxpayers with multiple jobs, a working spouse, or complicated returns will find it difficult to adjust their withholding to achieve the desired results.
The same problem exists for retirees with pension income, the difference being that they use a W-4P instead of a W-4.
Please contact our Leesburg or Warrenton office if you would like us to project your 2018 taxes and suggest how to adjust your payroll withholding so you might achieve the outcome you want.