Give your W-2 a once-over

Counting on a tax refund next year? Double-check your withholdings now.

Every tax season, a lot of people feel like they’ve hit the lottery — except it’s their own money they are collecting.

Millions of workers calculate their withholdings so that they get money back at tax time. They know their employer is sending too much to Uncle Sam, and they like it that way. They don’t trust themselves to save. They count on the tax refund for any number of things, such as paying off debt or taking a vacation.

But Congress passed major tax legislation at the end of last year that could affect your refund if you are one of these folks, according to a recent report by the Government Accountability Office (GAO).

Under the Tax Cuts and Jobs Act, the Department of the Treasury had to establish new federal tax-withholding tables. The IRS publishes the withholding tables and employers use them to determine how much tax to withhold from an employee’s paycheck.

Each year, employers withhold more than $1 trillion in income tax from employees’ pay, including wages, bonuses and commissions, according to the GAO.

Sen. Ron Wyden, D-Ore., and Rep. Richard Neal, D-Mass., asked the GAO to review the revised federal tax withholding tables for 2018.

The overwhelming majority of people — 73 percent — will still be in a situation where too much is withheld, according to the GAO. Meanwhile, 21 percent of taxpayers might not be withholding enough from their paychecks to cover their tax bill.

For the 2018 tax season — from January to May — the IRS issued more than 102 million refunds totaling $284.9 billion. The average refund was $2,778.

Ideally, the goal is to have your withholdings match your actual tax obligation. You might owe a little or get a tiny refund. But the current withholding system is biased slightly toward over-withholding, the GAO says in its report.

So how do you hit the right withholding or something close to it?

Review your W-4 Employee’s Withholding Allowance Certificate. As a wage earner, you are required to pay federal income tax by having it withheld from your pay throughout the year. The amount is based on the number of allowances you claim on your W-4. Allowances are based on your anticipated tax deductions (mortgage interest, charitable gifts, deductible medical expenses, etc.). If your tax situation changes — you get married, have a child or purchase a home — you should fill out a new W-4 form.

You can calculate the right number of allowances by using the worksheet on the W-4. Or you can go to irs.gov and search for “Withholding Calculator.”

Do this soon, because we’re already more than halfway through the year. If you find you’re going to owe, you’ll need to catch up by increasing your withholdings.

To use the IRS withholding calculator, you’ll need your most recent pay stubs, a copy of your 2017 federal tax return and any information about deductions or credits you expect to take.

Once you’ve answered a series of questions, the worksheet or online calculator will suggest a number of allowances you should put down on a revised W-4 to give to your employer.

If you fall into the following groups you definitely should check what’s being withheld from your paycheck, according to Eric Smith, an IRS spokesman:

You’ve itemized in the past but might now opt to take the higher standard deduction under the new law. It’s going up to $12,000 for individuals, $18,000 for heads of households and $24,000 for married couples filing jointly.

You are a two-wage-earning household.

You have a complex tax situation.

You have a significant amount of outside income not covered by withholding.

You receive a pension. If you use the IRS calculator, treat your pension income like it’s a paycheck, Smith said. Or use the worksheet on form W-4P Withholding Certificate for Pension or Annuity Payments.

If you’re receiving Social Security, you may also need to review how much is being withheld from your monthly benefit, Smith said. In this case, you would use the worksheet on the W-4V, the voluntary withholding request form for unemployment compensation and certain federal government and other payments.

Don’t be daunted by this task. If the number you get looks funky, go back through to make sure you answered the questions correctly. Or consult a tax professional.

If you regularly get a refund, you need to perform a paycheck checkup now. And while you’re at it, maybe it’s time you stopped having too much money taken out.

— Washington Post Writers Group

Talk to us

More in Herald Business Journal

Snohomish Delivers concierge Sarah Dylan Jensen picks up tea from Everything Tea on Tuesday, Jan. 5, 2020 in Snohomish, Wa. (Olivia Vanni / The Herald)
A Snohomish service brings goods from the store to your door

Developed by the city, Snohomish Delivers encourages online shoppers to look local. And it’s free.

Arthur Sepulveda, 32, has been looking for his first home since July. He put in bids for four houses and finally found one last month in Lynnwood directly from the builder. (Kevin Clark / The Herald)
Low mortgage rates fuel a frenzied, revved-up housing market

Home prices are soaring and bidding wars are back, and Snohomish County “Zoom towns” are hot locations.

Adam Ling works securing rebar reinforcement for a set of stairs on Tuesday, Jan. 5, 2020 in Lynnwood, Wa. (Olivia Vanni / The Herald)
With lots of people working at home, a rush for renovations

Homeowners with remodeling plans are keeping local contractors busy. Winter hasn’t slowed them down.

FILE - In this Wednesday, Nov. 18, 2020 file photo, workers stand near a Boeing 737 Max airplane parked at Renton Municipal Airport next to the Boeing assembly facility in Renton, Wash., where 737 Max airplanes are made. On Tuesday, Jan. 12, 2021, the company reported final 2020 numbers for airplane orders and deliveries, and they are down from 2019 even though the 737 Max is flying again. (AP Photo/Ted S. Warren)
Boeing deliveries drop despite 737 Max’s return to flight

The company has borrowed billions and cut thousands of jobs to reduce costs.

Kim Williams, CEO of Providence Regional Medical Center Everett and Providence Northwest, will retire July 1. (Olivia Vanni / The Herald)
Kim Williams, the local Providence CEO, will retire July 1

She was born at Providence in Everett and leads the health care provider’s northwest Washington group.

FILE - In this Wednesday, Dec. 11, 2019 file photo, a United Airlines Boeing 737 Max airplane takes off in the rain at Renton Municipal Airport in Renton, Wash. Boeing improperly influenced a test designed to see how quickly pilots could respond to malfunctions on the Boeing 737 Max, and Federal Aviation Administration officials may have obstructed a review of two deadly crashes involving the plane, Senate investigators say. In a report released Friday, Dec. 18, 2020 the Senate Commerce Committee also said the FAA continues to retaliate against whistleblowers.(AP Photo/Ted S. Warren, File)
Boeing to pay $2.5B to settle criminal charge over 737 Max

The settlement includes money for crash victims’ families, airline customers and airlines, and a fine.

Britt Morgan, left, who manages the Scriber Creek Apartments and twin sister Rachel Morgan, who manages the Madison Way Apartments on Wednesday, Dec. 30, 2020 in Lynnwood, Wa. (Olivia Vanni / The Herald)
Twin bridges in the challenging landlord-tenant relationship

When the rent is unpaid, property owners and lessors look to Rachel and Britt Morgan for help.

FILE - In this June 12, 2017, file photo, a Boeing 787 airplane being built for Norwegian Air Shuttle is shown at Boeing Co.'s assembly facility, in Everett, Wash. Boeing is dealing with a new production problem involving its 787 jet, in which inspections have found flaws in the way that sections of the rear of the plane were joined together. Boeing said Tuesday, Sept. 8, 2020, it's not an immediate safety risk but could cause the planes to age prematurely. (AP Photo/Ted S. Warren, File)
Boeing Dreamliner’s defects spur $7.5 billion cash drain

The company intends to repair 787 planes at its factory in Everett

The Rucker Renewal Project is complete but the COVID closures still hamper businesses along the thoroughfare in Everett.  (Kevin Clark / The Herald)
Bad soil, concrete and COVID added to Rucker project costs

Change orders for the project added nearly $2 million to the project’s original $9.5 million budget.

Amid pandemic, 2020 was an historic year for unemployment

After record joblessness last April, Snohomish County has a long road back to a pre-pandemic economy.

Photos from The Herald’s top 10 business stories in 2020. (Herald staff and submitted)
Coronavirus commerce: The baddest business stories of 2020

The COVID-19 pandemic touched every aspect of the economy in the U.S., state and Snohomish County.

Snohomish’s sassy candle company sues alleged copycat seller

The owner of Malicious Women Co. saw an Etsy page from Florida selling strikingly similar products.