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How to Balance Your Paycheck Tax Withholding in 2018

How to Balance Your Paycheck Tax Withholding in 2018

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

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: 

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 released a new W-4 Form for Tax Year 2019. Here is the 2019 W-4 Form – 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. 

Perfect, in general you are right on the money as long as your W-4 selections are the same and your income has not drastically changed from last year. We at efile.com work for you so you don’t owe a penny more in taxes than you absolutely need to.

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OK, sounds good. In case you change your mind, simply start the Tax Withholding Assessment Tool again or Contact one of our Taxperts now.

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Simply increase the current allowances by 1 on your W-4 and monitor your next paycheck.

Complete the W-4EZ form

Not sure what to do? Contact one of our Taxperts now.

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Simply decrease the allowances by 1 on your W-4 and monitor your next paycheck.

Complete the W-4EZ form

Not sure what to do? Contact one of our Taxperts now.

Start Over

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).

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.

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. 

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. 

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