It’s very, very likely that the W-4 form on file with your Idaho employer is off – way off. And as a result, you could have to pay hundreds of dollars at tax time in April, and even more next year if you don’t fix it now.
That’s the message both the Idaho State Tax Commission and the IRS have been trying to get out for months, but few have been listening. And the state’s income tax withholding levels have been falling tens of millions of dollars below forecasts since July – very likely all money that individual taxpayers will have to pony up come April.
It’s not an easy fix, either. First, a taxpayer must go through a complicated worksheet (or use an online calculator) to re-do his or her federal withholding allowance, in the wake of the big changes in federal tax laws in the past year. Those included doubling the standard deduction and doing away with the personal and dependent exemptions.
When that’s complete, you’ll have a number to fill in on line 5 of federal Form W-4, the total number of allowances you’re claiming. That number likely will be much different from what it was before. For example, a married couple with no dependent children at home in which just one spouse works will end up with a “3” on that line. A family with kids could end up with a very large number on that line – 11, for example, for a moderate-income, one-earner couple with two kids, or even, for some households, a number as high as 25.
In the past, the process ended there – the federal number for allowances on the W-4 form was the same for the state. But that’s no longer the case.
“You could end up with a horrible result if you use that number for Idaho,” warned Cynthia Adrian, income tax policy specialist for the state Tax Commission. “You’d have no withholding, and you’re going to have income that’s going to be taxable – so you don’t want that.”
After initially filling out the federal W-4, Idahoans now need to turn to the “2019 W-4 Worksheet for Idaho.” This will supply them with additional information to enter back on that same federal W-4 form. Among the key provisions: It’s no longer as simple as checking “married” or “single.” If both spouses work, each must instead check a third box: “Married, but withhold at higher Single rate.”
Missing that step alone, for a couple in which each spouse earns $50,000 a year, could mean having to come up with an extra $700 or so at tax time. That’s because the federal system now interprets “married” to mean the taxpayer will have the full, $24,400 standard deduction for the family shielded from withholding – and it’ll jump to the same conclusion for the other spouse as well. That means $48,800 would be shielded from withholding, twice as much as should be. To avoid that result, each working spouse needs to have just $12,200 exempted from withholding, which is the single rate.
And then there’s the whole issue of who will itemize deductions in the future. With the standard deduction doubling to $24,400, many who always itemized won’t any more. And there are differences between the federal child tax credit and the new Idaho child tax credit, which can change things as well.
“All of these moving parts have created this situation,” Adrian said.
Once Idaho taxpayers have completed the 2019 W-4 Worksheet for Idaho, they’ll get another number to enter on Line 5 of the federal W-4 form. As the worksheet instructs, they’re supposed to put a slash after the federal number, followed by the Idaho number.
For that married couple with one job and no kids at home, the entry on Line 5 ends up looking like this: 3/0.
“The bigger the number, the less withholding you have,” Adrian said. “They’re going to use whatever’s on file, unless you’ve changed jobs or you’ve gone in proactively and changed your W-4.”
Renee Eymann, Tax Commission spokeswoman, said, “Ideally, everybody would be updating their W-4 every year as their life situation changes. But in real life, nobody does that.”
If you’ve been in the same job for a long time, your W-4 may reflect something very out-of-date – like now-grown children still living at home, for example. And even if you just updated it a year ago, it doesn’t line up with the new tax laws at both the state and federal levels.
Overall, people are actually paying less in taxes this year at both levels, depending on their circumstances, due to cuts in tax rates. But if their withholding wasn’t updated, they may not have had enough withheld to cover even the new, lower amount of taxes they owe.
Adrian has been conducting numerous trainings on W-4 updates for private and public employers, and the Tax Commission has set up a special website: tax.idaho.gov/W4. That includes all the forms and instructions, but after filling all those out, taxpayers still have to take them in to their employers and get them on file there.
The mismatch between the new tax laws and existing withholding has been a problem nationwide, not just in Idaho, but for Idahoans, it’s a double-whammy.
People who end up with a big bill to pay in April won’t face penalties or interest if they pay in full by April 15 – but if they can’t, penalties and interest could get tacked on.
Because the 2019 tax year will mean a full year of the new tax law – while withholding changed partway through 2018 – it’ll be an even bigger impact then. “We’re trying to get people to change it now at the start of the year, for 2019,” Eymann said. “It’s not too late.”
Betsy Z. Russell is the Boise bureau chief and state capitol reporter for the Idaho Press and Adams Publishing Group. Follow her on Twitter at @BetsyZRussell.