I’m Still Learning How to Adult…

By Kevin Gibbons

I am embarrassed to admit that I finally learned something about tax preparation, after more than twenty years. For years, my wife and I had our taxes done by a major national tax service. For years, we received a significant federal refund and had to pay a significant amount on our state (California) taxes. We always claimed 0 deductions on our W-4 forms, so we felt we should have had more than enough money withheld.

This year, I suspected that we would end up taking the standard deduction on our federal taxes (due to the large increase in that allowance). Coupled with the fact that tax preparation is no longer deductible, I decided to save some money and do my taxes myself with a nationally recognized tax preparation software. Like many other people, I had insufficient funds withheld for my federal taxes this year. Additionally, I still had to pay extra for state taxes.

I understood my federal situation was due to the changes in withholding due to the 2018 tax changes. Determined to remedy this situation, I calculated how much additional money we both needed to withhold for federal and state taxes to ensure we would not have to pay next year. I dutifully accessed the federal W-4 Tax withholding forms to make the necessary changes.

As I was entering the changes for the federal withholding, I realized there was no place to change my withholding for the state income taxes. (I needed to withhold different amounts for the state and federal taxes.) At that point, I had the bright idea to do an internet search for California State Income Tax Withholding Forms. And I found one (DE-4). I have been working in California for more than 38 years and this is the first time I ever knew there was a different withholding form for the State! And guess what it says right in the form instructions?

“If you rely on the number of withholding allowances you claim on your Form W-4 withholding allowance certificate for your state income tax withholding, you may be significantly underwithheld. This is particularly true if your household income is derived from more than one source.”

No one, not any tax preparer, not any Human Resources officer, not any company accountant, ever told me about this. So, I’m telling you. If you pay state income taxes, check with your state Tax Board to see what your state withholding form says. You can and may need to have different withholding allowances or amounts for your federal and state income taxes.

Now, this may be obvious to many of you. If it is, I am happy for you. Consider reviewing your withholdings anyway, in light of the new tax changes. If it was not obvious to you, then take advantage of what I have learned, review both your federal and state withholdings for 2019. If you do it now, you will still have 10 months to ensure you have enough money withheld for your year’s taxes (If you wait until April to do it, you will only have 7 months to set aside a full year’s of tax withholdings.)