The IRS just released a brand new Tax Withholding Estimator last week, and they are encouraging individual taxpayers to use this Estimator to perform a quick “paycheck checkup”. As many taxpayers know, the IRS has been concerned about the sufficiency of individual federal income tax withholdings since the tax law was changed in 2018 to eliminate the value of personal exemptions, increase everybody’s “standard deduction”, and to adjust tax brackets and rates. This brand new Tax Withholding Estimator replaces last year’s Tax Calculator, which many taxpayers found to be confusing and difficult to use. Employers may wish to notify their employees of this brand new Tax Withholding Estimator so that employees can check their federal income tax withholdings and adjust them as needed before the end of 2019—-to avoid unexpected balances of tax due when they file their 1040 personal income tax returns
AccuPay has tested this new Tax Withholding Estimator for various types of taxpayers. It works best for individuals who earn most of their income from employment/wages, and this Estimator does a better job of correctly estimating federal taxes for 2 wage earner couples than last year’s calculator did. It does not work well for taxpayers who have significant income from self-employment, S/LLC K-1 income, or other sources of non-wage income. This Estimator does calculate the enhanced Child Tax Credits as well as a lower-income employee’s earned income tax credit, and also permits a taxpayer to use either the increased “standard deduction” or to claim “itemized deductions”. Most individual taxpayers now claim the increased “standard deduction” instead of itemizing their mortgage interest, donations, etc
We recommend that a taxpayer have the following information handy when they use the Tax Withholding Estimator:
1. Copies of their last paystubs for all jobs held this year—these paystubs should show both your current wages and tax withholding amounts as well as YTD amounts as well; and
2. A copy of your 2018 Form 1040 can also be useful as a “reference point” for your 2019 tax information you will enter into the Estimator
Once you have entered the requested information (for both spouses if applicable), the Estimator will suggest how many exemptions to claim for remaining 2019 payroll checks in order to “break even” at year-end or even to generate a small IRS refund. If an employee wishes to adjust their withholding for the remainder of 2019, they can do so based on the Estimator’s exemption recommendations and the Estimator also will provide a quick link to a downloadable new W-4 form to complete and provide to employers. Employers must then make sure the new W-4 information is entered into their payroll system (give copies of all new W-4 forms to AccuPay if you do not enter the new W-4 exemptions online yourself!)
Keep in mind that any revised 2019 W-4 exemption amounts is calculated for 2019 only, and the employee should provide their employer with a new W-4 at year-end before their first 2020 payroll check in January. Without another new W-4 form for 2020, your new W-4 form for 2019 could carry over into 2020, which would not create accurate tax withholdings next year
Here is a link to this brand new 2019 Tax Withholding Estimator for your use!
After you use the Tax Withholding Estimator, we recommend that you compare the results it creates with your wage amounts, federal income tax withholdings and child tax credits reported in your 2018 Form 1040. This comparison to your 2018 Form 1040 is simply a quality control check to make sure the Estimator’s input is accurate and generates 2019 taxes which make sense when compared to last year.
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