Are you withholding enough for your taxes? Under the new tax laws, many people are finding fewer taxes being withheld from their paycheck, so they have a higher take-home pay, but then receive a tax bill come April.
In this video, Allison Alley, CFP® breaks down exactly how tax withholdings work and how you could be better prepared when you go to file your taxes.
Something that’s been coming up in the news quite a bit lately is the question as to whether or not you’re under withholding your withholdings. So, let’s talk about that. The answer is possibly. With the new change in the tax laws, they lowered the tax rates. So, along with that the way that withholding from your paycheck is calculated was also changed. Most people are finding less taxes being withheld from their paycheck, so they have higher take-home pay, which is great. However, what didn’t get factored in was the changes to the itemized deductions rules and personal exemptions.
Because of those changes, many people are actually going to find themselves with higher taxable income, although it’s being taxed at a lower rate. But, because of that, you might actually have the same or similar amount of tax liability for the year that you did last year. If that’s the case and you’ve had less withheld from your paycheck due to the new way that it’s being calculated, you might find yourself with a rude awakening come April when you file your taxes and end up owing money to the IRS.
So you want to take a look at your year to date withholdings and compare that to what your likely tax liability for the year is going to be. There’s actually an IRS website calculator that can help you take a look at that. You can enter your income, whether or not you contribute to a retirement account, your year to date withholdings, and it’ll let you know whether or not you’re on track to be on par with what your total tax liability for the year will be. If you need any other information you can contact us at Pure Financial.