Why is it a good idea to do a "Withholding Checkup" with your clients?

With the passage of the Tax Cuts and Jobs Act came some sweeping changes to the IRS's withholding calculator and tables. Many taxpayers who previously under-withheld on their W-4 to balance their itemized deductions—and who didn't re-evaluate their withholding strategy with the TCJA's tweaks to itemized deductions—have found themselves with an unexpected tax bill. To prevent "sticker shock" it's a great idea to have a Witholding Checkup to review current withholding statuses, changes and make sure there are no dramatic surprises next tax season. 

It's also important to find out what is most important to the individual, some like having larger paychecks throughout the year might allow for quicker debt payoff. But reminding tax clients to perform "withholding checkups" after any changes to their income, employment situation, or federal and state tax laws is the best way to avoid any unpleasant surprises. 

Those at greatest risk of under-withholding their taxes include: 

  • Two-income households
  • Households with multiple jobs or a change in employment (which can mean income and deduction changes)
  • Households that receive the child tax credit, the earned income tax credit, or other credits
  • Households with dependents who are over age 17
  • Households that itemize their deductions
  • Households with rental properties, income-producing investments, or irregular sources of income 

The TCJA capped state and local tax deductions at $10,000, largely eliminated employees' ability to deduct unreimbursed employee work expenses, and limited disaster deductibility to FEMA's list of qualified disaster areas. When determining whether these or other tax changes will impact an individual's withholding obligations, the IRS's online Withholding Calculator is a good place to start.