Need to adjust your W-4? Here's how to do it


Don't just stuff a copy of your 1040 in your files now that April 15 is over. You may want to sit down and do a paycheck checkup. 

Did you suddenly owe $3,000 when you expected a refund? Did you get much smaller refund than usual? 

A lot could be out of whack when it comes to how much money you're withholding in payroll taxes. Next year, it's possible it could be worse for some taxpayers. Why? Take-home pay went up in 2018 after new withholding table was put in place for roughly nine months to account for lower tax rates in the Tax Cuts and Jobs Act of 2017. This year, you could be going an entire year with having too little taxes being withheld — unless you take action.

It's impossible to generalize this tax season about the state of America's returns. But if you owed more than you expected, take notice now. 

Two common trouble spots: 

— Two wage earners: The IRS notes that each job is withheld starting at the lowest tax rate. But if a married couple is filing a joint return, their actual tax is calculated on their combined income. And that often puts a married couple filing a joint return in a higher tax bracket.

— Itemizers: Your old withholding allowances might no longer really reflect what you're able to itemize under new tax rules that eliminated many common deductions for state income taxes, local taxes and property taxes. Maybe your children are 17 or older and you don't get as big of a tax break.

For some tax filers, the extra money that ended up in their paychecks turned out to be more than the amount their taxes would have gone down under the Tax Cuts and Jobs Act, according to H&R Block data.

An estimated 10 million taxpayers could have been affected by the new $10,000 limit on deductions for individuals for state and local taxes.

If your net tax bill was much higher or lower than your withholdings, you can adjust your withholdings by making changes to your W-4 form with your employer.

Here is where you start

If you want to have more — or less — money taken out for federal income taxes in 2019, fill out a new W-4 form. Before you start, though, it may help to take a look at an online tool from the Internal Revenue Service called the "IRS Withholding Calculator," that will help you assess how much should be withheld from each paycheck.

"It does a pretty nice job walking you through how you complete a W-4," said Susan Allen, senior manager on the tax practice and ethics team at the American Institute of CPAs. "It will get you thinking in the right direction." 

Five different screens of questions are involved in the process. Some are fairly easy. Filing single, or married filing a joint return? How many jobs do you and your spouse have? Are you contributing to a tax-deferred 401(k) plan at work? How many dependents are you claiming on your tax return?

But the calculator gets pretty detailed pretty quickly.

"Expect it to take some level of effort. It is not something you run on your phone and do in five minutes. In essence, you are simulating your full-year taxes," said Jonathan Smoke, chief economist for Cox Automotive who used the calculator in 2018 to avoid any nasty tax surprises.

"If you take your time and put quality information into it (your best estimates), you should have a solid view of what your tax situation will look like next year," Smoke said.

So if you're on track now to withhold $5,000 in taxes but you'd owe another $6,000 at tax time, the calculator will let you know.

Once you complete the information on the calculator, you even get a number on how much money to withhold on Line 6 of the W-4 form: "Additional amount, if any, you want withheld from each paycheck."

Smoke said he was happy he took time to run his numbers through the calculator back in 2018. As a result, he increased his tax withholding throughout much of last year and was able to still get a tax refund.

"I ended up getting an amount similar to last year and what I expected," Smoke said, noting if he didn't make adjustments in his W-4 in 2018, he would have been "negatively surprised" with a tax bill.