You probably remember that the government passed some extensive tax law changes late in 2017. These were called the Tax Cuts and Jobs Act. Early in 2018, the IRS reduced withholding rates to account for some, but not most, of the tax law changes. (For many of us, this resulted in higher take-home pay which will cause smaller refunds.)
Significant errors in withholding are undesirable. If your withholding is too low, you will owe money at the end of the year and might be subject to interest and penalties. If your withholding is too high, you will have unnecessarily loaned the government interest-free money.
You adjust withholding through your employer by controlling the number of “allowances” you claim. The more allowances taken, the lower your withholding will be. The IRS has created a calculator to help you determine the proper number of allowances to use. You can find this tool here.
This change in the tax laws is a good reminder to keep an eye on withholding rates. We should always review this aspect of our finances whenever we have a major change in our life – marriage, divorce, new children or the purchase of a new home.
While 2018 is now in the books, this is a great time to make any necessary adjustments to your withholding rate for 2019. In fact, your 2018 tax return will provide excellent insight into your tax liability under this new law.
If you have questions on your withholding, how to use the withholding calculator or other aspects of your financial life, we’d be happy discuss your situation in a no-charge, no-obligation initial meeting. Just visit our website or give us a call at 970.419.8212 to learn more.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.