How did your taxes come out for 2018? Did you pay what you expected last year?
At the beginning of 2018 there was a reduction to the payroll tax rate as part of the new tax law. While this increased take home pay for workers, it caused some taxpayers—for the first time—to have to make a payment with their 2018 federal income tax return.
In spite of lower overall tax rates, some taxpayers actually owed more federal income taxes than in 2017. In many cases, this was because they had large state & local income taxes to deduct but could only deduct a maximum of $10,000 for 2018. If you lived in a state with a lot state income taxes such as Massachusetts, California or New York, you probably know what I am talking about.
So that you can set things straight for 2020, now is a great time to review your current income tax withholding amount. The place to start is with the four page IRS Form W-4. On this form you indicate your current situation, e.g., one or multiple jobs, married, single, children, etc. Then you figure out the correct withholding amount so you can change the amount withheld with your employer.
If you wait until July 2020 to do this, you will have already completed half the year with possibly the incorrect withholding. So, we suggest that you fill it out now so that the entire year will be at the right rate. After you fill it out, submit it to your employer and they’ll update your withholding rate.
Still have questions about withholding? Contact your accountant or give us a call. We’re here to help.
Lyman H. Jackson
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. FPS provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client after entering into an advisory relationship. Information herein includes opinions and forward-looking statements that may not come to pass. Information is derived from sources believed to be reliable. Information is at a point in time and subject to change without notice. Such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page