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Is it Time to Change Your Backup Withholding?

By September 4, 2019December 16th, 2022Legal, Payroll

Withholding TaxesBy the end of each year, I’m usually approached with questions from clients who have received their W-2 form and are concerned about owing taxes when it comes time to square up with the Internal Revenue Service (IRS).

It’s good practice to make sure that your backup withholding is up to date so that you avoid unwanted surprises. If you’re an employer, it’s helpful to be aware of the hardship that employees could experience if they’re not withholding properly. This is a good time of year for companies to remind their personnel that they should evaluate their paychecks and use a calculator to see if they are going to owe. There’s still time to adjust to have enough taxes taken out.

Who should revisit their withholding?
In general, you could benefit from re-evaluating or adjusting your tax withholding if you:

  • Have high incomes or zero withholding within your household.
  • Never look at paystubs – you’re happy as long as the money went into your account.
  • Were surprised last year and don’t want to be surprised again about owing taxes.
  • Have received raises or bonuses since the previous tax season.

It’s better to check now than wait until year-end to see if you need to change your withholding.

How to analyze your optimal withholding
The IRS does not mind if you change your withholding during the year – in fact, they encourage it! Now is a good time to revisit withholding because the IRS is making changes to the W-4 form that are expected to become effective in 2020. The new form captures more information with the goal of making withholding more accurate.

The IRS’s online Tax Withholding Estimator can help employees perform a quick “paycheck checkup” – just follow these steps:

Special Note for 2020: If you follow the recommendations at the end of the Estimator and change your withholding for 2019, the IRS recommends that you recheck your withholding at the start of 2020 to help protect against having too little withheld next year. This is especially important if you reduce your withholding sometime during 2019 because a mid-year withholding change in 2019 may have a different full-year impact in 2020.

If you have additional questions about your withholding, consult your employer or tax advisor. If you’re a company that works with third-party payroll firms, you’ll want to send in these changes as soon as you get them so that they can be processed in a timely manner. Marathon payroll clients should send in their changes as soon as they are ready.

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