Draft 2019 W4- they can't be serious!

[kathyc2]

My clients are being asked to update their 2018 W-4 and that is why I am telling them stay the course for now. My primary reason is not to have a situation where a otherwise refund due client becomes balance due! I know my clients. They would have a fit if all of a sudden they have to write a check to the IRS.

Staying the course can make a balance due for 2018 where 2017 had a refund. While the W4 did not change from 17 to 18, tax laws and withholding formulas did.

Example: one earning 100K and one earning 25K. Both claim M0. 2017 withholding would have been a total of 15,950 and 2018 will be 12,683 for a reduction of 3,267. It having itemized deductions of 20K in 2017, the tax liability would be 15,703 producing a refund of 247.

For 2018 they will have standard deduction, lose personal exemptions and tax liability will be 14,100. Their tax liability went down by 1,604, but their withholding went down by 3,267 producing a balance due of 1,417.

Clients who had a small refund in 2017, itemized, and didn't have children under 17 are quite likely to have a refund turn into a balance due. If you don't want to actually run the math for withholding, it would be better advise for these people to tell them to drop a couple dependents or change at least one W4 from M to S rather than telling them to "stay the course".

What tax software do you use?

[ATSMAN]

Good points. One of the things that I have over emphasized to my clients is that the bump up in net take home pay they got after TCJA was really their refund in their paychecks instead of a lump sum at tax filing. Hopefully those folks remember that in the unlikely situation where they have a small balance due they will factor that before throwing a fit!

I did run the Drake planner with clients where I knew they were very sensitive to any changes in tax refund due to loss of personal exemption and no increase in CTC.

[kathyc2]

I did run the Drake planner with clients where I knew they were very sensitive to any changes in tax refund due to loss of personal exemption and no increase in CTC.

Does that take info effect the lower withholding? It's a little cumbersome to work with, but Pro has a utility to recommend withholding on W4's. The default is for it to be close to break even, but it's easy to trick it to produce the desired refund.

I played around a little with the IRS calculator and have one MAJOR gripe with it. It only looks as the amount withheld on last paycheck to calculate the remainder of the year withholding. That's fine if pay and withholding does not fluctuate much, but if the last paycheck happened to be high due to such things as a lot of overtime, it's overstating the refund people might be expecting. That said, the recommendation it produces did seems to be close to break even on scenarios I tested.

[ATSMAN]

Does that take info effect the lower withholding? It's a little cumbersome to work with, but Pro has a utility to recommend withholding on W4's. The default is for it to be close to break even, but it's easy to trick it to produce the desired refund.

I played around a little with the IRS calculator and have one MAJOR gripe with it. It only looks as the amount withheld on last paycheck to calculate the remainder of the year withholding. That's fine if pay and withholding does not fluctuate much, but if the last paycheck happened to be high due to such things as a lot of overtime, it's overstating the refund people might be expecting. That said, the recommendation it produces did seems to be close to break even on scenarios I tested.

The Planner does not actually calculate the withholding, you have to input the taxable wage and the withholding and there lies the problem as you pointed out.

What I typically do is take the 2017 Taxable wage and adjust that if taxpayer will be receiving a bonus etc. and then apply the 2018 Annual Withholding Percentage (Table 7). That gets me close enough for the planner. If the taxpayer can provide me with a current paycheck stub, I will project that out and make some adjustments. I just want to be in the ballpark. For folks who have variable paychecks (sales people etc.0 they need to tell me where they will end up for the year, or I will use the 2017 W2.

Any client that I run a Planner, I tell them to come back at the end of 3Q for a free rerun!