KANSAS CITY, Missouri — As 2018 comes to a close and the window for correcting paycheck withholding errors narrows, an H&R Block survey shows why so many failed to update their withholding: they don’t know how. Only 46 percent of respondents said they felt prepared to update their W-4 on their own and many showed confusion over what information a W-4 uses, when and where to submit a W-4, and how allowances iåncrease or decrease withholding. Consumers can get help updating their W-4 before the end of the year by visiting an H&R Block office for a free tax reform checkup, which includes W-4 planning, or early next year when they file their taxes with H&R Block.
“Consumers mostly want to get the same size refund as they have in prior years, while 47 percent actually expect a larger refund. But they haven’t taken action to make that happen, and don’t even know how,” said Kathy Pickering, vice president of regulatory affairs and executive director of The Tax Institute at H&R Block. “The good news is that consumers can come to an H&R Block office and get free W-4 planning help during their free tax reform checkup or their tax prep appointment.”
40 percent reported updating their W-2, which an individual cannot do
Only 19 percent of respondents updated their paycheck withholding after tax reform, even though that is the best way to ensure tax reform changes like the increased child tax credit and the limitation of state and local tax deductions do not alter their expected refunds. Another 40 percent of respondents said they updated their W-2 after tax reform, which cannot be done, and 17 percent said they updated their insurance documents.
Failing to update their W-4 puts taxpayers at risk of unplanned outcomes, ranging from higher refunds that could have been helpful during the year, to owing the IRS instead of getting an expected refund. If taxpayers don’t like their outcomes this tax season, going forward, they can update their W-4 with their employers to ensure they get a more desirable outcome next year.
27 percent think an updated W-4 goes to IRS, not employer
The survey showed 45 percent of respondents were unsure what factors could be considered a withholding allowance on their W-4. A W-4 form requires a lot of the same information that goes on a tax return: filing status, income, itemized deductions and eligibility for child- and dependent-related tax credits. The W-4 worksheet goes through this information to generate the number of allowances, which then determines how much tax is withheld. In a household with multiple jobs or wage earners, the balancing act of allowances between each W-4 becomes more complicated.
Before even getting into the details that go on the W-4 form, respondents were already confused. Only 42 percent of respondents knew they should submit their updated W-4 to their employer. Of respondents, 27 percent thought it went to the IRS, 7 percent to their financial advisor, or 6 percent to the Social Security Administration.
In addition, 47 percent did not know they can update their W-4 at any time.
Finally, respondents were not sure how to adjust their withholding to get the desired outcome. Only 48 percent knew increasing withholding would result in a larger refund, while 47 percent knew decreasing withholding would result in larger paychecks.
Respondents also did not feel confident they could update their withholding on their own. Only 46 percent felt prepared to update their W-4 while 31 percent did not have anyone they trusted to help them.
Consumers can use H&R Block’s updated tax refund and tax reform calculator online to see their expected refund, as well as a range by which their paychecks potentially increased, to show their full tax picture. If they don’t like what they see, they can make estimated tax payments or adjust their withholding to affect their 2019 taxes.
Schedule a tax reform checkup online, or by calling 800-HRBLOCK.