ST. GEORGE — We have often used the old adage “Don’t cry over spilled milk.” When it comes to filing tax returns each year, some individuals don’t have much milk to spill in the first place. The purpose of this article is to assist all taxpayers to not “spill milk in the future” and keep more of what they earn.
The GOP tax bill, which was passed last December 2017, made many changes to the tax law. Although the official filing season for Tax Year 2018 is not officially over until Oct. 15, those taxpayers who filed by April 15 experienced some difficulties this year.
The tax bill actually changed income tax rates, and the IRS recommended that the taxpayer examine their current withholding situation and recalculate if necessary. Many taxpayers either neglected to adjust their withholdings or simply didn’t know how to make these changes. This was indeed a source of much discontent for individual taxpayers this year and in a lot of cases they had tremendous sticker shock when the tax bill was presented to them.
The major culprit in many cases was the Form W-4 that is often used but seldom understood. The purpose of the Form W-4 is for the employer to withhold the correct federal income tax from taxpayer’s paychecks. The instructions encourage individuals to complete a new Form W-4 each year and especially when your personal and financial situation changes.
Recently, the IRS issued a draft of a new Form W-4 for the year 2020. Yes, that is right. They are working on changes to the Form W-4, but they will not go into effect until the year 2020.
“The new draft Form W-4 reflects important feedback from the payroll community and others in the tax community,” said IRS Commissioner Chuck Rettig. “The primary goals of the new design are to provide simplicity, accuracy and privacy for employees while minimizing burden for employers and payroll processors.”
According to a recent press release by the IRS, they expect to release a near-final draft of the 2020 W-4 in mid- to late-July to give employers and payroll processors the tools they need to update systems before the final version of the form is released in November. This new Form W-4 no longer uses the concept of withholding allowances, which was previously tied to the amount of the personal exemption.
So what about now? Currently, individuals are using 2019 Form W-4, and this should not be a problem. However, as I reviewed the new form, alarm bells went off in my head, and I believe the time is now for many taxpayers to review their current withholdings.
Simply looking at the federal withholding on the most recent pay stub and extrapolating to a full year of withholding will give insight into the level of federal withholding at year-end. Comparing this extrapolated amount to the 2018 Individual Tax Return Line 15 “Total Tax” will provide a general sense of adequate withholding or not.
In addition, the IRS has a tool that is beneficial to do a quick check on your payroll. This tool is referred to as the “Paycheck Checkup.” The tool will help the individual see if they are withholding too much or too little on their current paycheck.
Written by NATE STAHELI, Ph.D., chair of Dixie State University accounting and finance department
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