COEUR d’ALENE — This spring, many an Idaho taxpayer is in for a surprise.
That’s why the Idaho State Tax Commission is urging residents to take action to protect their money from the tax man.
The Idaho tax rate reduction and Idaho child tax credit, plus the federal Tax Cuts and Jobs Act, made the math behind individual income taxes change considerably last year. Yet most people haven’t updated the number of allowances they claim on their W-4s, said Cynthia Adrian, tax policy specialist with the Idaho State Tax Commission.
During the first part of 2018, before the new federal tax tables came out, people were withholding under the old tables. Many people might have been over-withheld for those months, Adrian said. However, when the new tables came out in May, the situation reversed.
As a result, many have had too little tax withheld since May. That could mean people end up with a smaller-than-anticipated refund this spring. Worse: It could mean they end up owing taxes at tax time.
“If they haven’t updated their W-4 they’re most likely in for a surprise,” Adrian said.
The Government Accountability Office estimates that two of 10 federal tax filers, or approximately 30 million people, will be underwithheld at the federal level this year.
Everyone should have updated their W-4s when tax reforms took effect at the federal and state levels last summer, Adrian said. If they didn’t, at this point there is nothing tax filers can do about having too little withheld from last year’s paychecks, she said, since taxes are withheld during each pay cycle and can’t be retroactively withheld.
In addition to an unpleasant surprise, Idaho tax filers have another tax change on their hands. From now on, instead of filing just one W-4 with their employers, each employee will need to file a federal W-4 plus a state W-4. That’s because federal and state tax systems now diverge when it comes to individual income taxes. The number of allowances Idahoans use on their W-4 to withhold money for federal taxes is not applicable to their state taxes.
“While the federal W-4 form is still needed for calculating federal withholding, the Idaho W-4 is a shorter, simpler and far more accurate way of determining your Idaho withholding,” said Tax Commission Chairman Ken Roberts.
The Idaho State Tax Commission has rolled out a new, state-specific W-4 form. It’s officially called the Form ID W-4, with ID standing for Idaho. It is catered to the Gem State’s tax laws.
The commission also created a webpage that highlights the new W-4 landscape: http://tax.idaho.gov/w4
The webpage also gives step-by-step guidance on retirement and other nonwage sources of income.
Adrian warned that if people don’t file new W-4s soon, the problem will keep compounding.
Idahoans should look at the state’s W-4 form to calculate how many allowances they should claim for state tax withholding. They should also use the IRS calculator, linked at http://tax.idaho.gov/w4, to help people determine how many allowances they should claim under the new federal tax laws.
Adrian said that after making both calculations, people should update both W-4s and bring them to their employer’s human resources department. Changes to tax withholdings should take effect at the next pay cycle or whenever the employer inputs those updates, she said.
She urged Idahoans to update their W-4s regularly. Employees often file W-4s with their employers when they begin jobs, and then don’t check them again until they get new jobs. That’s a mistake, Adrian said.
“It doesn’t hurt people to get into the mode of checking if they need to change their withholding each January,” she advised.
She also said W-4s should be updated when people experience major life events such as births, marriages, and when kids grow up and leave the nest.
For folks who will be surprised by a state tax bill this year, payment isn’t due until April 15, said Renee Eymann, spokesman for the commission. They can make prepayments until then and avoid paying interest. Prepayments can be made using the QuickPay service: https://idahotap.gentax.com/tap
Anything due after April 15 gets charged interest, Eymann said. However, taxpayers can request a payment plan, she said.
Adrian added that even if filers don’t have the cash to pay their state taxes, they should file anyway to avoid getting hit with added penalties for filing late.
The IRS said Monday that people shouldn’t delay filing their returns due to the ongoing, partial, federal government shutdown. In a press release, the IRS said it would process tax returns and issue refunds to taxpayers as scheduled, beginning Jan. 28. The IRS also said it’s recalling a significant number of workers furloughed during the shutdown.
“For taxpayers who usually file early in the year and have all of the needed documentation, there is no need to wait to file. They should file when they are ready to submit a complete and accurate tax return,” said the release.
For more information or for answers to questions, taxpayers or employers can call the Idaho State Tax Commission toll free at 800-972-7660.