TaxTipsISSUE:

IRS Form W-4 (Employees’ Withholding Allowance Certificate) can be difficult to navigate for any of us.  The IRS has developed a “Tax Withholding Estimator” to help employees properly plan for tax withholding.

 

 
 

SITUATION:

Idaho Bible College and Seminary (IBCS) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(i).  They are not required to file Form 990 annually.

The IBCS Accounting Team is working with us as we complete fieldwork on their June 30, 2019 audit.  One question that has arisen with respect to employees and employment taxes concerns over- or under-withholding of Federal income taxes.  The IBCS Team relates that several of their employees have struggled with the nuances of completing Form W-4 each year and, ultimately, find their families have “missed the mark” with respect to withholding.

“Is there anything you can tell us that might help?” They ask.

“One idea is to use a tool the IRS is currently touting, the “Tax Withholding Estimator.”  This tool can be found on the IRS’ website and can be very useful for a mid-year ‘paycheck checkup’ – or so says the IRS!”

The system walks you through a “survey-like” set of questions to help estimate what your Federal tax withholding should be.

To quote the IRS, “The Tax Cuts and Jobs Act changed the way tax is calculated.  The IRS encourages everyone to perform a ‘paycheck checkup’ to see if you have the right amount of tax withheld for your personal situation.”

The webpage also gives tips for what data to gather to prepare to use the “Estimator.”  Carefully follow the guidelines in order to ensure accurate calculations.

In a recent EO Update, the IRS stated, “The new taxpayer-friendly tool on IRS.gov helps workers tailor the amount of income tax their employer should withhold from their paychecks and avoid unexpected results at tax time. The Estimator allows filers to target a tax due amount close to zero or a refund around $500.”

The Tax Withholding Estimator can be found at:

www.irs.gov/individuals/tax-withholding-estimator

 

RULES:

From IRS.GOV (Website) “Tax Withholding Estimator”:

The IRS encourages everyone to use the Tax Withholding Estimator to perform a quick “paycheck checkup.”  This is even more important following the recent changes to the tax law for 2018 and beyond.

The Estimator helps you identify your tax withholding to make sure you have the right amount of tax withheld from your paycheck at work.

There are several reasons to check your withholding:

  • Checking your withholding can help protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time next year.
  • At the same time, with the average refund topping $2,800, you may prefer to have less tax withheld up front and receive more in your paychecks.

If you are an employee, the Tax Withholding Estimator helps you determine whether you need to give your employer a new Form W-4 (Employees’ Withholding Allowance Certificate). You can use your results from the Estimator to help fill out the form and adjust your income tax withholding.  If you receive pension income, you can use the results from the estimator to complete a Form W-4P and give it to your payer.

 

BOTTOM LINE:

  • Form W-4, Employees’ Withholding Allowance Certificate, can be difficult to navigate.
  • The instructions to Form W-4 are not necessarily clear.
  • The 2017 “Tax Cuts and Jobs Act” changed the way individual taxes are calculated.
  • If you utilize this tool, be sure to study the section, “Plan Ahead: Tips For Using This Program” that is included on the webpage noted above.

Specific questions? Email Dave Moja

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.

© 2019 Moja & Company, LLC