{"id":35262,"date":"2018-10-03T02:15:54","date_gmt":"2018-10-03T07:15:54","guid":{"rendered":"https:\/\/resource-center.hrblock.com\/?p=35262"},"modified":"2021-07-19T16:48:35","modified_gmt":"2021-07-19T21:48:35","slug":"am-i-withholding-enough-taxes","status":"publish","type":"post","link":"https:\/\/hrbcomlnp.hrblock.com\/tax-center\/irs\/tax-reform\/am-i-withholding-enough-taxes\/","title":{"rendered":"Can I Estimate Tax Liability For The Year?"},"content":{"rendered":"

Editor’s Note:<\/strong> If you\u2019re wondering if you can estimate tax liability for the year, the short answer is \u201cyes\u201d \u2013 through the Form W-4. This form offers a tax liability formula and will help you answer \u201chow much tax should I withhold?\u201d.  <\/em><\/p>\n

Determining the \u201cright\u201d amount of federal and state taxes to withhold from each paycheck is not a new challenge, but the Tax Cuts and Jobs Act<\/a> (TCJA) caused many taxpayers to revisit this question: Should I change my withholding? And, how can I estimate tax liability?<\/p>\n

Why is it Important to Estimate Tax Liability?<\/h2>\n

The amount of federal and state taxes you withhold from each paycheck determines whether you\u2019ll get a refund, break even, or owe taxes when you file your tax return. The goal is to eliminate any surprises at tax time.<\/p>\n

\u201c<\/em>Am I Withholding Enough?<\/em>\u201d<\/em><\/h2>\n

\"am<\/p>\n

Many American employees wonder \u201cAm I withholding enough taxes each paycheck?<\/em>\u201d<\/em> Sometimes, it is not enough to claim the highest default withholding that you can on the W-4. You may need to calculate if you need to pay extra each month. The W-4 has a method for you to calculate that.<\/p>\n

\u201cHow Much Tax Should I Withhold?\u201d<\/em><\/strong><\/h2>\n

Some taxpayers like to get a large refund, some prefer a small refund, and others prefer a small balance due, taking comfort in knowing they didn\u2019t make an interest-free loan to the government.<\/p>\n

Regardless, everyone should aim to withhold at least enough to avoid any underpayment penalties.<\/a><\/p>\n

How to Cover Your Tax Liability Through Withholding<\/h2>\n

To learn how to not owe taxes when you file your return, you should read and complete your W-4 Form<\/a> each year or when you have a change in your circumstances such as marriage, divorce, having a child, or when you have a change in income. Use Form W-4 to adjust your tax withholding, if necessary, after you have an idea what your tax situation looks like for the full year. Without estimating your tax liability (see below), changing your withholding is like shooting a target while blindfolded. This is especially true in a year when there are tax law changes, even if you don\u2019t expect any changes in your personal life.<\/p>\n

How to Estimate Your Tax Liability<\/h2>\n

To figure out if you are withholding enough federal taxes, follow these steps to estimate your tax liability for 2019:<\/p>\n

    \n
  1. Review last year\u2019s tax return.<\/strong> If you filed your tax return for 2018, take a look at your \u201ctotal tax\u201d (line 15, Form 1040).<\/li>\n
  2. Estimate tax liability.<\/strong> Look at last year\u2019s return and project the upcoming year\u2019s tax return based on any known or expected changes in your personal tax situation. This is an important and sometimes complicated step, so you may want to get help from a tax professional or use H&R Block\u2019s income tax calculator<\/a><\/span>.  Changes in your life (children, marriage, new job, etc.), or other complexities (like owning a small business, personal investments, or earning extra income from a side job) can significantly change your tax bill, as can tax reform<\/a> overall.<\/li>\n
  3. Determine how much has been withheld so far.<\/strong> You can find this information on your last earnings statement or payroll stub.<\/li>\n
  4. Subtract the withheld taxes from your projected tax bill.<\/strong> This is the amount of withholding you\u2019ll need for the rest of the year to closely match your estimated tax liability.<\/li>\n
  5. Divide the amount you still owe by your remaining pay periods.<\/strong> This is the amount you should withhold from each paycheck for the rest of the year to cover your estimated tax bill.<\/li>\n
  6. To make changes, complete a new Form W-4.<\/strong> If you want a larger refund, you\u2019ll make changes so your employer will withhold more tax. If you submit the form in 2019, you will reduce<\/em> your \u201cwithholding allowances.\u201d This increases the taxes your employer withholds (and reduces your take-home pay). Or, you can add a fixed amount to be withheld from every paycheck. If you want a smaller refund, or a balance due, increase <\/em>your allowances. This will reduce your withholding (and increase your take-home pay).<\/li>\n
  7. Complete the <\/strong>new Form W-4<\/strong><\/a> as soon as possible. <\/strong>The longer you wait, the fewer pay periods you\u2019ll have to take advantage of your new withholding amount.<\/li>\n<\/ol>\n

    How to Estimate Your 2019 Tax Liability \u2013 An Example<\/h2>\n

    You and your spouse earned a combined $80,000 in 2018. You have a 15-year old daughter. You claimed the child tax credit and you use the standard deduction. Your federal tax bill for the year was about $4,340, and your employer withheld $4,500. So, you received a refund of around $160.<\/p>\n

    Time to roll up your sleeves \u2013 and do a few calculations to estimate your 2019 tax liability.<\/p>\n

    You don\u2019t expect any major life or job changes this year, aside from a 2% pay raise. You experienced how TCJA impacts your tax return – the standard deduction has increased, dependent exemptions have gone away, the deduction for state and local taxes has been capped, and the child tax credit has doubled. What does that mean to you?<\/p>\n

    After following the steps above, you estimate that you\u2019ll owe about $4,480 in 2019.<\/p>\n

    Despite no changes in your personal life, there are several tax changes that will affect you in 2019, just like they did in 2018. These changes include:<\/p>\n