Summertime Checklist: Income Tax Withholding Review??
If you were to ask someone ‘What plans do you have for this summer?’, a few classic summertime activities you can expect to hear would be: the beach, amusement parks, camping, vacations, baseball games, and barbecues. However, one item you most likely haven’t heard, but one that should be on everyone’s mind, is reviewing the levels of your income tax withholding.
Why should I review my withholdings?
According to IRS statistics, so far in 2017 the IRS has issued more than 106 million refunds out of 142 million total returns processed for the 2016 tax year. As of now, the average refund issued by the IRS is over $2,700. You might ask, ‘So what’s the problem if I am receiving a refund, isn’t it a good thing?’ Well you would technically be right, but you may be surprised to hear that the IRS benefits from this arrangement far more than the taxpayer does. Why is that? It is because the IRS has been able to use these refunds as an ‘interest free loan’, in some cases for upwards of a year. For the taxpayer, the opposite is true, they are consenting to give the IRS an interest free loan rather than receive what they are entitled to receive.
In short, you should review your withholdings as you may be able to increase your net take home pay immediately!
How do I know if I should revise my withholdings?
While the tax situations of taxpayers change year to year, if you have not experienced major life changes from one tax year to the next (i.e. new home, married, children, new jobs, etc.), the simplest way is to look at your prior tax returns. If you received a refund, or if you owed money to the IRS, you may want to consider revising your withholdings depending on the size of the refund (or balance owed). However, if you have experienced a major life change, you should strongly consider consulting a tax advisor to review your withholdings and determine if any adjustments are necessary.
If you have any questions, or if you need assistance seeing if you are a candidate to review, and possibly revise your withholdings, please feel free to contact me.
Andrew Johnson, CPA