W-4 Tax Withholding Taxercises

W-4 Form
Taxercise

The IRS is currently preparing a new W-4 Tax Witholding Form for January 2020. For any paycheck tax witholding during Tax Year 2019 eFile.com has prepared the W-4 easy form. You should not have to complete a complicated worksheet but rather use the eFile.com free 2019 tax calculator to determine the number of Allowances for the W-4 form. More on this later.

The current 2019 W-4 Form requires you to enter a number of Allowances - not to be confused with number of Dependents. Allowances will go away in 2020 and you will be asked to enter a Dollar amount of Taxes to be withheld each pay period. During this W-4 Form transition, we at eFile.com work for you and we want you to keep as much of your hard earned money now via your paycheck. As a result please ask yourself which of the following 2019 Tax Return and Paycheck Goals you would like to pursue now. 

Taxometer: Tax Balance Goals, Steps to Take

Below are simple to follow considerations when planning the number of Allowances for your 2019 W-4 Form(s) so you meet your 2019 Tax Return goals in 2020.

  • Step 1: Did you file a 2018 Tax Return in 2019? If so, review this return now. If you e-Filed through eFile.com, your return is stored under My Account - sign in now. If you did not file via eFile.com or don't have a copy of your Tax Return, you can order a transcript or copy of your 2018 Tax Return.
  • Step 2: Decide on your 2019 Tax goals based on past Tax Return(s). If you never filed a return, ask yourself the Tax Balance questions as listed below or contact one of the eFile.com Taxpert for a free discussion.
    • If you received a 2018 Tax Refund in 2019 select the goal : Decrease your 2019 Return Refund in 2020.
    • If you owed Taxes with your 2018 Tax Return select the goal: Decrease your 2019 Taxes Due in 2020.
    • If you didn't get a Tax Refund nor owed Taxes with your 2018 Return select the goal: Keep Your W-4 Number of Allowances in 2019 the same as in 2018.
  • Step 3: Use the free 2019 W-4 Tax Withholding Calculator and estimate your 2019 Tax Return, now.
  • Step 4: Complete the Tax Year 2019 Easy W-4 Form accordingly and submit it to your employer(s) once you have determined the right number of Allowances that meets your 2019 Tax Return goals.
  • Step 5: Contact a eFile.com Taxpert to discuss your 2019 Tax Strategy.
adjust your paycheck withholding

2019 W-4 Allowances Goals, Adjustments

2019 Tax Return
Adjustment
Paycheck, 2019 Tax Return Effects due in 2020
Goal: Decrease your 2019 Return Refund in 2020.
Action: Increase Your W-4 Number of Allowances by one. Contact us for your exact details.
Result: Your IRS tax withholding will decrease and your net Paycheck will increase now or per subsequent pay period. What you do not know is whether you will actually decrease your Refund or owe Taxes when you eFile your 2019 Tax Return in 2020. In order for you to find out now before you submit your W-4 to your employer and estimate your 2019 Return now: Start the free 2019 W-4 Tax Calculator. If it shows a Tax Refund, increase your W-4 Allowances now. If it shows Taxes owed, decrease your W-4 Allowances now.
Goal: Increase your 2019 Return Refund in 2020
Action: Decrease Your W-4 Number of Allowances now by one. Contact us for your exact details.
Result: Your IRS tax withholding will increase and your net Paycheck will decrease now or per subsequent pay period. What you do not know is whether you will actually get a Refund or owe Taxes when you eFile your 2019 Tax Return in 2020. In order to find out now before you submit your W-4 to your employer and estimate your 2019 Return now: Start the free 2019 Tax Withholding Calculator. If it shows a Tax Refund, increase your W-4 Allowances now. If it shows Taxes owed, decrease your W-4 Allowances now.
Goal: Decrease or Eliminate Taxes owed in 2020
Action: Decrease Your W-4 Number of Allowances at least by one. Optionally, on your W-4 add a Dollar Amount of Taxes to be withheld per pay period. Contact us for your exact details.
Result: Your net Paycheck will decrease. What you do not know is if the Allowance adjustment will result in your goal not to owe Taxes in 2020. Find out now before you submit your W-4 to your employer and estimate your 2019 Return now: Start the free 2019 W-4 Tax Withholding Calculator. If it shows Taxes owed decrease your W-4 Allowances now. If it shows a Tax Refund, increase your W-4 Allowances now. Do this cycle until you are happy with the expected results of no refund and no taxes owed or any other tax balance goal listed here.
Goal: No Tax Refund, No Taxes Due in 2020
Action: Keep Your W-4 Number of Allowances the same.
Result: Your net Paycheck might increase or decrease. What you do not know is if the Allowance adjustment will result in your goal not to owe Taxes nor to expect a Tax Refund when you eFile your 2019 Tax Return in 2020. Find out now before you submit your W-4 to your employer and estimate your 2019 Return now: Start the free 2019 W-4 Tax Calculator. If it shows a Tax Refund, increase your W-4 Allowances now. If it shows Taxes owed, decrease your W-4 Allowances now. Do this cycle until you are happy with the expected results.
Goal: Self Imposed Tax Refund Penalty! What is this?
Action: Read on and run the numbers if you had a Refund this year or expect one next year. Contact us for more details.
Result: Yes, you will penalize yourself financially with a Tax Refund in 2020. Period. Of course, you might have other reasons to get this refund, as in: - I'm so used to get my Refund, I know it doesn't make financially any sense. Or, I don't have self discipline, a tax refund is a way to save and so on. We get it, there is always a reason not to do something :)!  However, we are here to help you with the cold, hard numbers at the tune of 18% per year: Find out if you suffer under a self imposed Tax Penalty Syndome?

W-4 Case Studies

You will find two 2019 W-4 case studies, one for Taxes Owed in 2018 and one case for a 2018 Tax Refund. If your 2018 Tax Return reflected one of these scenarios and your 2019 income, deductions, filing status has not or will not change significantly, you can lean on your 2018 Tax Return results when planning your 2019 W-4.

2019 Tax Return Refund Case Study Summary

 

Item
Period
Amount
Step 1 - Add up your 2019 IRS Tax Withholding: Include you, and your spouse’s, IRS Federal Tax Withholdings from each paycheck this year. Be sure to add Withholding from previous jobs you had in 2019 and estimate your Tax Withholding amounts for current jobs through the end of 2019. In our example, we had $400/month withheld resulting in $4800 of IRS Tax Withholding for all of 2019 (Jan 1 - Dec 31).
Tax Year 2019
$4,800
Step 2 - Estimate your 2019 Tax Refund: Estimate for all of 2019 your Total income, tax withholding, deductions etc.  Estimate your 2019 Tax Refund now and enter the tax withholding amount below the W-2 Wage income section in the eFile.com Tax Withholding calculator. In this example the est. Refund is $2,100. Continue to re-estimate your 2019 Tax Refund should income, deductions etc. change.
Tax year 2019
$2,100
Overpaid Tax Withholding for 2019: The estimated 2019 Tax Refund is effectively the amount overpaid in Tax Withholding for the year 2019. In this example: Est. Tax Refund $2,100 = Over Tax Withholding.
Tax Year 2019
$2,100
Adjusted Tax Annual Withholding for 2019: If you divide the est. tax refund amount $2,100 by the remaining months or pay periods for 2019 - 7 months - you will get an amount you have to subtract from your current pay period withholding amount: $2,100 divided by 7 = $300.
Less/pay period
-$300
New Pay Period Tax Monthly/Annual Withholding: Current monthly tax withholding from Jan. 1, - May 31, 2019 = $400 minus adjusted  $300/pay period IRS withholding from June 1 - Dec. 31, 2019 = $100 new per month total IRS withholding amount. The effective annual tax withholding will be $2,700 instead of $4,800.
Per Pay Period
$100
Step 3 - Adjust your Allowances on your W-4: Only for tax year 2019 the number of allowances - not the exact dollar amount - on the 2019 W-4(s) is used to adjust pay period tax withholding amount. Thus, in this example we will increase the number of allowances on the W-4 by "1" for the next pay period. If the amount on the next paycheck(s) exceeds $100 we increase the number of allowances by another "1" and so on until we reach $100 - or close to that amount - total monthly withholding on all paychecks.
Per Pay Period
Allowances
Step 4 - Create new W-4, submit to Employer(s): Complete your 2019 W-4 Form as often as needed. In other words, you can submit this as often as you wish to your employer(s). Realistically, review the IRS withholding amount on your paycheck(s) and make adjustments accordingly based on the results of Step 1 above and your W-4 tax balance goals. Create a new 2019 W-4 now. Go back to the 2019 Tax Return Calculator and estimate your Taxes/Refund for 2019 with the new adjusted total IRS Tax Withholding amount.
Per Pay Period
Form W-4
Result: From June 1 - Dec. 31, 2019 per month paycheck will increase by $300. The 2019 Tax Return Refund in 2020 will be $0 or tax balanced for Tax Year 2019
Paycheck Increase
$300
Step 5 - Monitor Paycheck IRS Tax Withholding, Adjust Allowances: As soon as you receive the new paycheck(s) based on this new Allowance amount, add up all monthly IRS tax withholding amounts. If the total withholding amounts exceeds $100/month increase your Allowance number again by at least "1" and submit your W-4(s) to your employer(s) again. Continue with this approach until you are at $100/month of IRS total tax withholding for the remainder of 2019 or close to that amount. This approach seems a bit cumbersome, however in 2020 the Number of Allowances on the W-4 will go away and you will only have to enter a dollar amount, which will make this easier. Please contact our Taxpert via the link below Step 4 if you need assistance.
W-4
Allowances

 

Please let us know any further details or questions you may have to help you tax balance and tax plan. Don't give your hard earned money to the IRS during the year, only to get it back with your next Tax Return refund. Make sure you provide the information listed below under A, B, C. All of these steps will become easier in 2020 when Allowances will be replaced with tax withholding dollar amounts to be entered on your 2019 W-4(s).

 

Question
Answer
A: The results of the estimated 2019 Tax Return in Step 1?
Estimated 2019 Tax Return Tax Refund $______
B: Total IRS Tax Withholding year-to-date 2019?
IRS Tax Withholding (you and spouse) $______
C: Current number of Allowances per employer?
Allowances per employer: You___   Spouse___

 


2019 Tax Return Tax Liabilty/Taxes Owed Case Study Summary

If you owed Taxes on your 2018 Tax Return and your goal is not to owe Taxes on your 2019 Tax Return - due in 2020 - follow the steps below. Financially speaking, if you have the money and money saving discipline, you could save the pay check tax withholding funds and pay your Taxes owed in 2020. Depending on the amount you might owe in 2020 and the money saving interest rate, it might be an option for you. Again, this approach requires saving discipline to avoid potential IRS and State late payment penalties. Otherwise, follow the steps below to plan for a tax balance in 2020.

 

Item
Period
Amount
Step 1 - Add up your 2019 IRS Tax Withholding: Include your, and your spouse’s, IRS Federal Tax Withholding from each paycheck this year. Be sure to add all Withholding from previous jobs you had in 2019 as well and estimate your Tax Withholding amounts for current jobs through the end of 2019. In our example, we had $108.33/month withheld resulting in $1300 of IRS Tax Withholding for all of 2019 (Jan 1 - Dec 31).
Tax Year 2019
$1,300
Step 2 - Estimate your 2019 Tax Return: Estimate all your, and your spouse's, 2019 total Income, Tax Withholding, Deductions etc.  Estimate and Calculate your 2019 Tax Return now and enter the Tax Withholding amount below the W-2 Wage income section in the eFile.com Tax Return and Withholding Calculator. In this example, our Tax Withholding Estimator resulted in Taxes Owed or Tax Liability on the 2019 Tax Return of $1,400. Continue to re-estimate your 2019 Tax Refund should income, deductions, etc. change.
Tax year 2019
$-1,400
Underpaid Tax Withholding for 2019: The estimated 2019 Tax Owed is effectively the amount underpaid in Tax Withholding for the year 2019. In this example: Est. Tax Liability or Taxes Owed is $1,400 = Underpaid Tax Withholding.
Tax Year 2019
$1,400
Adjusted Tax Annual Withholding for 2019: If you divide the estimated Taxes Owed amount, $1,400, by the remaining months or pay periods for 2019 - 7 months - you will get an amount you have to add to your current pay period withholding amount: $1,400 divided by 7 = $200.
Add/pay period
+$200
New Pay Period Tax Monthly/Annual Withholding: Current monthly Tax Withholding from Jan. 1, - May 31, 2019 = $108.33 plus adjusted $200/pay period IRS withholding from June 1 - Dec. 31, 2019 = $308.33 new per month total IRS withholding amount. The effective annual tax withholding will now be $2,700 instead of $1,300.
Per Pay Period
$308.33
Step 3 - Adjust your Allowances on your W-4: Only for tax year 2019 the number of allowances - not the exact dollar amount - on the 2019 W-4(s) is used to adjust pay period Tax Withholding amount. Thus, in this example we will decrease the number of allowances on the W-4 by "1" for the next pay period. If the amount on the next paycheck(s) is below $308.33 we decrease the number of allowances by another "1" and so on until we reach $308.33 - or close to that amount - total monthly withholding on all your and your spouse's paychecks .
Per Pay Period
Allowances
Step 4 - Create new W-4, submit to Employer(s): Complete your 2019 W-4 Form as often as needed. In other words, you can submit this as often as you wish to your employer(s). Realistically, review the IRS withholding amount on your paycheck(s) and make adjustments accordingly based on the results of Step 1 above and your W-4 tax balance goals. Create a new 2019 W-4 now. Go back to the 2019 Tax Return Calculator and estimate your Taxes/Refund for 2019 with the new adjusted total IRS Tax Withholding amount.
Per Pay Period
Form W-4
Result: From June 1 - Dec. 31, 2019 total per month paycheck(s) will decrease by $200. As a result the 2019 Tax Return Refund or Taxes Owed in 2020 will be $0 or Tax Balanced for Tax Year 2019
Paycheck Decrease
$200
Step 5 - Monitor Paycheck IRS Tax Withholding, Adjust Allowances: As soon as you receive the new paycheck(s) based on this new Allowance amount, add up all monthly IRS tax withholding amounts. If the total withholding amounts is below $200/month decrease your Allowance number again by at least "1" and submit your W-4(s) to your employer(s) again. Continue with this approach until you are at $200/month of IRS total tax withholding for the remainder of 2019 or close to that amount. This approach seems a bit cumbersome, however in 2020 the Number of Allowances on the W-4 will go away and you will only have to enter a dollar amount, which will make this easier. Please contact our Taxpert via the link below Step 4 if you need assistance.
W-4
Allowances

 

Please let us know any further details or questions you may have to help you tax balance and tax plan. Financially speaking, you could save the additional $200 in tax withholding and earn interest on the amount and pay the amount of $1,400 in Taxes Owed by the next Tax Day. This however, assumes that you have the discipline to save these funds so you have them available to pay your taxes and avoid potential IRS and state late payment fees. If you require assistance, please make sure you provide the information listed below under A, B, C. All of these steps will become easier in 2020 when Allowances will be replaced with tax withholding dollar amounts to be entered on your 2019 W-4(s).

 

Question
Answer
A: The results of the estimated 2019 Tax Return in Step 1?
Estimated 2019 Tax Return Tax Refund $______
B: Total IRS Tax Withholding year-to-date 2019?
IRS Tax Withholding (you and spouse) $______
C: Current number of Allowances per employer?
Allowances per employer: You___   Spouse___