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NOW'S THE TIME TO REVISE YOUR TAX WITHHOLDING FORM

Who wouldn't like to take home an extra $5, $10 or $25 a week in their paycheck?

Well, many taxpayers can in 1998 -- if they take the trouble to revise their tax withholding form early in the year.

Because of a bevy of new tax breaks, many families can see lower tax bills next year. The biggest break is the child tax credit, which will erase $400 per child from that all-important taxes owed line of the 1040 form, for families with below-six-figure incomes.

So why wait a year to see the money?

"People really do need to change their withholding," said Ann Burstein Cohen, professor of accounting at the University at Buffalo. "Most people like to get a refund. But that's an interest-free loan to the government. For financial planning, you should really owe (taxes)."

If you're like many wage earners, you haven't thought about your withholding form, called a W-4, since you turned it in at the company personnel office. The W-4 determines if your filing status is married or single and totes up your "withholding allowances," a scoring system that provides payroll bean counters with an educated guess of your taxes.

Most years, you shouldn't have to think about your withholding statement. Behind the scenes, the Internal Revenue Service issues a yearly update for withholding amounts. The system is designed to keep the deduction from your paycheck in line with your actual tax bill.

The big exceptions come in years when your filing status changes. Going from single to married status -- and vice versa -- means you should fill out a new W-4. Other changes in your family situation, such as when children achieve non-deductible adulthood, also should send you to the personnel office with pencil in hand.

Next year, the big change is in the tax code itself. To reflect the new tax break, W-4 forms for 1998 have a new line that deals with the child tax credit. The form gives low- and middle-income couples an extra withholding allowance for each child under age 17. Each allowance reduces your withholding amount.

Other things being equal, a three-child family that's below the income limit of $110,000 will see its tax bill drop by $1,200 next year. That amounts to a boost of $23 in the weekly paycheck. The child tax benefit phases down as income grows. For example, the same-size family with income of $130,000 would see a tax credit of only $500.

If you plan to itemize, a worksheet with the W-4 allows you to calculate your withholding more precisely. Be prepared to estimate your home mortgage interest, charitable contributions, state and local taxes (excluding sales taxes), and your interest and other non-wage income.

It's important not to underpay your taxes by a wide margin, financial planners said. If the amount deducted from your paycheck is less than 90 percent of your actual tax bill, you may be subject to a tax penalty. For most taxpayers, though, there's no penalty as long as you withheld at least as much as last year's tax bill, Ms. Cohen said.

But on the W-4, there's little danger of underestimating your tax bill. To the contrary, the form makes it easy to overshoot and withhold more than you need to. For example, you don't have to enter all the allowances you're entitled to, the form advises. And there's an extra box on line 6 for you to enter an additional amount you want held back from each paycheck, over and above your estimated taxes.

Bad idea.

"Some people love to have a $3,000 or $4,000 refund every year, but this is not the way to save money," says Lawrence C. Jones, a financial planner with Legend Equities Corp. in Amherst.

You can get the same forced savings effect by setting up an automatic deduction from your checking account, he said. Tell your bank to automatically pull the amount you chose from checking into a savings account every pay period. That way, at the end of the year you'll have your "refund," plus the interest you're entitled to. For example, having an extra $50 a week taken out of your paycheck will provide a refund of $2,600. But the same amount pumped regularly into a 5 percent money market account will yield the same $2,600, plus $50 in interest. That's like getting an extra week's savings.

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