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How to Balance Your Paycheck Tax Withholding in 2018

What to do with my W-4?

Did you know that about 30 million Americans are not having enough taxes withheld from their paychecks? This is what the Government Accountability Office, a legislative agency that provides data to Congress, concluded in a recent report. In other words, over 2 in 10 taxpayers will owe money to the IRS in 2019 when they file their 2018 Tax Returns. The Office also reported that nearly three quarters of taxpayers are withholding too much tax from their paychecks, resulting in tax refunds next year. 

2018 Tax Withholding Chart Gao

Give Your Paycheck A Tax Withholding Workout!

If you owed taxes this year when you filed your 2017 tax return, you may want to update your paycheck tax withholding as soon as possible. Here are some things to consider: 

  • You probably did not have enough taxes withheld from your paycheck last year, which caused you to owe taxes in 2018. 
  • Continuing to have too little tax withheld from your paycheck for the rest of this year could put you in the same situation in 2019. 
  • You may end up with a larger tax bill when you file your 2018 Tax Return next year.
  • If you underpay your taxes too much, the IRS may apply penalties and interest to your tax bill.
  • Adjusting your paycheck withholding results in an even withholding amount for the rest of the year. 
  • Waiting to adjust your paycheck withholding means that you have fewer pay periods to withhold the necessary federal tax from your paycheck.
  • Using our Paycheck Tax Withholding Assessment Tool can help you make an informed decision on whether you need to update your paycheck tax withholding. 
  • If you have a more complex tax withholding situation (you owe self-employment tax, the Alternative Minimum Tax, or tax on unearned income from dependents), you may want to review the IRS Publication 505 for 2018. It may also help you if you receive non-wage income such as capital gains and dividends.

What Is the Difference Between Dependents and Allowances?

Do you know the difference between dependents and allowances? A taxpayer claims one or more dependents on their annual federal and/or state tax return.  A taxpayer adjusts paycheck withholdings by either increasing or decreasing the number of allowances on a W-4 form.

Deductions and allowances are not the same. The number of deductions - among other factors - affects the number of allowances you enter on your W-4. The number of allowances is also determined by the number of income sources, tax deductions, etc. and is entered on a W-4.

A W-4 form is only submitted to the employer and not to the IRS. The employer uses the W-4 as a source for federal and state tax withholdings from your paycheck. (Note: Due to the 2018 Tax Reform, the IRS will release a new W-4 Form for Tax Year 2019. Here is a glimpse of the 2019 W-4 Form draft - please do not use this form in 2018).

If you receive a tax refund when you file your tax return, please be aware that this is your money that you give to the IRS interest free and is a result of too few allowances entered on your W-4. Therefore, you may be penalizing yourself by not receiving your money now via your paycheck. To have or keep your future refund money now, simply increase your allowances on your W-4 and submit it to your employer(s). You can submit W-4's as often as you wish. 

Before you change the number of allowances on your W-4, please review or shape your personal paycheck Tax Withholding assessment or strategy. 

Tax Withholding Assessment Tool

Do you want a bigger paycheck now by balancing your tax withholding?

Let's See... Did you get a tax refund with your last year's tax return?

Are you sure? So, no tax refund, no tax payments for you, last year?

Which means you gave the IRS and State too much of your money in the form of tax withholding each pay period. Are you cool with giving your money to the government, interest free, only to get it back later as a refund?

It means you did not withhold enough tax from your paycheck each pay period. Do you still want to owe taxes next year?

What Is a W-4?

A form you use to report how much federal tax you want taken out from your paycheck. You submit the W-4 form to your employer(s) and not the IRS and not to the State Agency(ies).

How Do I Complete the W4 Form? 

We have created the W-4EZ form for you. Alternatively, you can complete the original W-4 form. Complete one of the two W-4 forms below: 

Here are the rules of thumb for the W-4: If you increase your allowances, your tax withholding per paycheck will decrease. This could result in a smaller tax refund and more money in your paycheck (but increasing your allowances too much may result in higher taxes owed). If you decrease your allowances, your tax withholding per paycheck will increase. This could result in a bigger tax refund or lower taxes owed. Keep in mind that allowances does not equal dependents. You can enter as many allowances as you want to obtain the results to meet your tax balance objectives. Please contact one of our Taxperts if you have have questions about this.

If you or your spouse have multiple jobs or income from many sources (e.g. independent contractor income, dividends, etc.) completing a W-4 for one job is not giving you an accurate picture whether you will receive a tax refund - and the size of your refund - or whether you will owe taxes. Since the W-4(s) will not actually show the tax withholding in dollar amounts, you need to check your paychecks for the tax withholdings.

As the next step, please use the free efile.com 2018 Tax Calculator and enter all your income (e.g. W-2, 1099, other, etc.), and deductions in order to better assess your tax balance. Estimate and enter the annual tax withholdings on your paycheck(s) and/or W-2(s), or tax estimate payments (Form 1040-ES) and find out whether you can expect a refund or will have to pay taxes next Tax Day on April 15, 2019.

Based on the results, complete a W-4 form and adjust your allowances accordingly and submit it to your employer. Your next paycheck will reflect the tax withholding changes. If you need to further adjust your tax withholdings, complete and submit a new W-4. You can also ask your employer to withhold a specific dollar amount for tax payments should you have other W-4 income sources.

Where Do I Submit a W-4?

Once you have completed, signed, and printed the W-4 form, you should submit it to your current employer. You can have different allowances on different W-4 forms for different employers. 

How Often Can I Submit a W-4? 

There is no limit. Once you have completed and submitted a W-4 that meets your tax withholding strategy, change it only when life changing or income changing events occur. 

Where Can I Find More Information About Federal Tax Withholding?

See the 2018 IRS Publication 505.

Where Can I Find the State Tax Withholding Forms? 

Visit our state income tax page to find your state's tax withholding form. Generally, we recommend entering the same number of allowances your entered on the Federal W-4 on the state tax withholding form(s).

What If I Have More Questions?

Contact an efile.com Taxpert!

The 2018 Tax Calculator efile.com Tax Estimator for Tax Year 2018.