You May Have Insuffcient Withholdings

By Alice Horton-Barr, CEO, Honest Abe's Taxes, Inc.

When people filed taxes, many found that they owed taxes or had a much smaller refund than normal. The reason that people were in this situation was that with the change in the tax brackets under the new tax laws the IRS sent out new tax tables for employers to use for withholding that resulted in people having less withheld from their pay which resulted in larger net paychecks and smaller refunds at tax time.

Also, people at your job may “help you fill out your W-4”; these people often are not knowledgeable about tax laws and/or of your situation to give you good advice as to how to fill out the W-4 for yourself. The W-4 is designed to give your employers enough information for payroll tax software to virtually calculate your tax withholding to the penny of the tax that you owe and put you at a break-even/owe the government at tax time!

You must be pro-active in tax planning to look at your earnings and withholding and estimate multiple times during the year to see if you have enough being withheld. While estimating if you do not have enough being withheld you can elect to have “extra” federal withholding and therefore avoid having a “balance due” scenario.

Basically, your best bet, is to have 10% to 12% of your gross wages withheld as federal withholding each paycheck, based on your tax due on your last tax return, some people are as high as 17%. To accomplish the correct withholding most people should claim single or married filing separate and have all -0- (ZERO) on all lines of the form W-4. If you have children, yes you can claim some of them in the lines below but be aware if you do that you are taking your “refund” home each paycheck and it may not be there when you file your taxes.

Our clients have “Tax Check-ups” which make sure they have the right tax withholding scenario that suits their personal needs. See your tax preparer for yours, or come be our client if your preparer does not offer you this service as part of your tax prep fee.

At Honest Abe’s we encourage and do tax planning on a regular basis throughout the year. We are located at 259 Claremont Avenue, Hometown, 570-668-8297. Come be a member of our family!