Home > Withholding...Trying to Figure It All Out

Withholding...Trying to Figure It All Out

February 7th, 2018 at 01:51 pm

I have calculated the new withholding amounts we expect to see on my husband's paychecks going forward after the new tax law was passed. I used

Text is and Link is to do the calculations. We currently withhold 9 exemptions every pay period. That means the withholding in the past for us has been $409 per month. The new amount based on the same withholding will be $319 per month. An $80 difference, or $960 a year.

Sounds great right? Well, if I'm understanding the new tax laws for no personal exemptions, but higher standard deduction for married couples, and lower tax brackets, we will definitely have lower taxes, but the withholding we are currently at will be deficient by $400, and maybe more if we cannot take the full American Opportunity Credit for college expenses in 2018. I don't mind owing, but I'm now working to decided if I want to change our withholding to 8, or even add more to retirement to offset income.

I will get it figured out. I know how to do it all, I just need more time to decide what we want to do. Sending more to retirement when we already invest 18% and expect a pension equal to half my husband's pay is starting to seem like overkill. Again, just decisions to be made. I also need to figure how much we may actually pay in college costs out of pocket this year.

Oh, and a note slightly related to figuring taxes. When you claim the American Opportunity Tax credit you can only do it for four years per child. So if you claim it their first semester of their freshman year, that is one tax year. Therefore, once you get to spring semester of their senior year, you are into a fifth tax year...which you cannot claim. In our case, I did claim it for our oldest daughter for that first semester. Although, we didn't use the full amount, but my guess is as tuition increases through the year and our educational savings options run out we would benefit more in that final semester. I think there is still the Lifetime Learning Credit that can be taken indefinitely and combined even if you have another student still eligible for the AOTC. (There are income limits, so don't assume you are eligible based on the information I provide here. Do your own research for your specific situation)

I also have to remember that I can adjust withholding later in the year as we have more information...such as the amount we have actually paid out of pocket for college expenses that could be claimed.

Hmm...another thought I may actually take the Lifetime Learning Credit for my youngest this year, since it will be for just one semester. Then finish up using the American Opportunity Credit for our oldest daughter for 2018. The following year we could swap these. I think that could work. That would lower our taxes even more. I sure would rather the money go to pay tuition, than to the government who is overspending as it is with our tax dollars.

Have you done the calculations for your 2018 taxes? Did you have to change withholding? Will your taxes be less?

14 Responses to “Withholding...Trying to Figure It All Out”

  1. LivingAlmostLarge Says:

    I'll look later for 2018. Too busy, but apparently from a HR Block "next year look" i'll save like $20k or more? Right now we owe less than I suspected for 2017. I feel as do other coworkers that things keep popping up.

  2. LivingAlmostLarge Says:

    I forgot to add that you probably are set for retirement. Have you run the numbers in Monte Carlo with all your assumptions of pension and current savings? The pension has a valuation and it's worth a lot. So I think you are correct in assuming it's overkill. This is on top of maxing out your roth IRAs right?

  3. creditcardfree Says:

    It's been awhile since I ran retirement numbers...last time I ran them they were more than sufficient for our style of living. The 18% figure is of gross pay, it includes our Roth IRAs that yes, we do max out. Because some of our income is not taxed by the state, or federal we are in the 15% bracket for 2017 and then 12% for 2018. Once my husband is promoted that may bump us up to the next bracket...although I guess I don't know what those current thresholds are with the new law.

  4. Carol Says:

    I think you know this but wanted to mention that taxable savings ( as opposed to Roths,and IRA's) can be helpful in retirement so that , if you need to, you can manipulate brackets etc.

  5. creditcardfree Says:

    Yes, Carol. I know...but I probably did need the reminder. Smile

  6. Dido Says:

    Remember that, while personal exemptions go away, there is a new higher Child tax credit of $2,000 per child under 17, and $500 for dependents on your return who are older than that. That will help offset things.

    Wait til the IRS withholding calculator is updated and check there.

  7. creditcardfree Says:

    Thanks Dido, our children are over 17 for 2018. I didn't know about the $500 for older dependents...will look into that, since that would make a difference.

  8. ceejay74 Says:

    Hoo boy, I just wrote a big post of all the things going on in my life and completely forgot about taxes! We've gotten most of the documents, I think, so I need to collate them and fill out the booklets my tax guy gives me.

    I'm so confused by the new law that I think I'm just going to bring a recent paystub and see if the tax guy will weigh in on what he thinks I should do with our withholding. I also need to ask him about that pass-through business tax break and see if AS will be eligible for it and how to set it up (and whether to change our quarterly payments) if she is.

  9. Pnwmom Says:

    I’m curious as to why your withholdings are nine?

  10. creditcardfree Says:

    @Pnwmom, withholdings do not need to be the same as the personal exemptions you claim on your taxes. If you use a withholding calculator, (which has been available in the past on the IRS website) it helps you determine how much to withhold in order to meet your expected tax liability. It takes into account many factors such your personal exemptions, if you itemize or have credits you claim. If we only withheld four with our family we would be getting huge refunds every year, which we don't like to do. We want our money in our pockets now, not waiting until the end of the year. We withheld 9 this last year and will owe just $91 in taxes. It's all about getting the right amount withheld in comparison to your tax liability. This is not illegal either.

    Text is This and Link is
    This may help explain more.

  11. Pnwmom Says:

    Gotcha! I was just curious....not suggesting you were doing anything wrong or illegal Smile

  12. creditcardfree Says:

    Oh, I know you weren't suggesting it, but someone else reading might wonder if that is allowed. Yep, it is...and it's how you get your withholding lower, but claiming a higher number on your W4.

  13. Dido Says:

    One thing to keep in mind is that the W-4s are still the OLD form. The Trump team wanted to rush the added pay into people's pockets so Mnuchin decided to have the IRS issue new withholding tables for the purpose of cutting paychecks without changing the W-4. That's why I suggest checking your withholding with the IRS calculator when it is back online later this month. New W-4s will be out later this year. One worry with the way the tax bill was implemented is that they didn't wait for the W-4s to be redone and so some people may find their tax withholding to be insufficient and owe a big tax bill for April 2019 on their 2018 income. You can limit that possibility by going and checking the withholding on the calculator at and adjusting accordingly

  14. creditcardfree Says:

    Dido, yes that is the hardest part in figuring it all out right now, that they didn't update the W4 or even the IRS withholding calculator. Your link, simple states the calculator is being updated. Luckily it is something one can monitor and check in regularly this year as more information becomes available, and adjustments can be made accordingly.

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