A Surprising 21% of Americans Don’t Withhold Enough Taxes
If you’re one that struggles to understand withholding taxes or how they impact your paycheck and your end-of-year filing, rest assured you’re not alone. Taxes are one of just two certainties in life and the subject can be confusing for many people.
Like most laws, those involving taxes are subject to change, sometimes multiple times throughout a calendar year. This means you have to account for the adjustments or run the risk of not paying enough and instead, owing when it comes time to file. Additionally, circumstances in your life may change and impact your withholding taxes. Let’s take a look at what withholding is and how it can affect you.
What Are Withholding Taxes?
Most everyone who works is subject to withholding taxes. These amounts are taken out, or withheld, from each paycheck by your employer and sent to the government as partial payment of federal and state taxes, where applicable.
When you start working for a new employer, you’ll likely fill out a W-4 form, which lists your marital status and allowable exemptions. This form helps your employer determine how much tax to withhold each pay period. It’s your responsibility to check your withholding regularly, particularly when there’s a change in tax law or a major life change.
Tax Cuts and Jobs Act of 2017
At the end of 2017, the Tax Cuts and Jobs Act of 2017 was passed. This act reduced the income tax brackets for 2018 so that many employees saw more money in their paycheck each pay period. It also increased the standard deductions by nearly 100 percent. All of this appears to be good news on the surface.
However, the extra money in each paycheck has led to some tax filers receiving a lower refund or even owing more than usual when they filed their taxes for 2018. This is one of the reasons why it’s important to thoroughly review what impact changes in tax law have on a long-term basis.
What Is Considered a Major Life Change?
Even if you just started working for a new employer, circumstances can change throughout the remainder of the calendar year. For example, if you give birth or get married, these are considered major life changes that affect your overall tax picture. Whenever you experience a major life change, it’s important to adjust your W-4 to reflect these developments.
If it’s been a while since you’ve checked or adjusted your withholding, it’s a good idea to review your W-4 and make any applicable changes. Speaking with a qualified tax professional can also help you make educated decisions on tax matters.
~Here’s to Your Financial Health!
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