Are you having enough taxes withheld from your paychecks?
When 2018 tax returns were filed in April of 2019, many Americans were surprised to see that they would be writing a check to government instead of receiving one. This marked the first time in their life many had owed the federal government after doing their taxes. According to the IRS, they issued 1.5 million less refunds by the beginning of April 2019 as compared to the same period prior year.
What caused this shift? The answer is form W-4. Employees fill out the form, give it to their employer, and it dictates how much is withheld from their paychecks based on a table. The Trump Administration told the IRS to make changes to the table so people would take more home with each paycheck. The effect was higher take home pay at the cost of less being paid in. This lowered refunds and caused many people to owe at year end.
Financial professionals feel it is better to have more take home pay than a larger tax refund. When you get a large income tax refund you are just giving the government an interest free loan. That being said, many Americans want a large refund at the end of the year as a sort of forced savings account. Others want to be as close to $0.00 as possible. Having the correct amount withheld is a balancing act. No one wants to be caught off guard by a large bill with penalties and interest.
In order to avoid potentially owing for 2020, you need to make sure your W-4 is telling your employer the right information. Contact SBS CPA Group at 260-407-5000 and we will help you figure out how to best fill out the W-4 for your personal situation.
Mike Sylvester, CPA/ABV, MBA