Host: Hey Jeff, today on the program we want to talk about those individuals that may be receiving a bigger paycheck this year in 2024 and I think a lot of people think that hey that’s a good thing. I want to make more money. I want a bigger paycheck. Here’s the reality. Here’s the truth. Sometimes a bigger paycheck could actually hurt you.
Jeff: Yeah, and this isn’t necessarily a bigger paycheck because you’re making more. It’s just a bigger paycheck because withholdings are going to go down for this year 2024.
Host: Okay, so walk us through that.
Jeff: Yeah so what happens is every year the tax brackets and your standard deductions things like that they all increase because of inflation. And the inflation this year was about 5.4% which means that if you have the exact same income as you had in 2023 you’re going to pay less tax in 2024 just because the brackets have increased and you get more standard deduction. Now you think that that’s good which it is. You know more people are going to get a higher net pay at the end of the day. But it could backfire for some of those people that have withholding but also have to pay quarterly estimates.
Host: So walk us through why that that is going to impact some people because again I think it feels hey if my paycheck is bigger for whatever reason that should be a good thing but again the reality is that that’s not always true for everyone. There’s always that exception to the rule.
Jeff: There is and that’s because of the underpayment penalty. So if you don’t pay enough taxes in during the course of the year the IRS is going to charge you interest because you didn’t pay enough. And that’s what happens sometimes when people pay quarterly estimates. Now to be safe from penalty we’ve talked about this in the past but it’s been a little bit to be safe from penalty you have to pay in at least as much tax as you had last year as either withholding or estimated tax payments. Well one of the things that we calculate your estimated tax payments on is we take your tax from last year minus your withholding from last year and that’s what we base your estimates off of. Well now let’s say your you’ll say your withholding goes down but your income stays exactly the same. Well now you haven’t paid enough in estimates at that point and so the IRS is going to charge you underpayment penalty. So my main reason for the conversation today is that if you have both withholding and you also pay estimated tax payments really talk to your tax preparer this year to make sure that you’re covered under those safe harbor rules.
Host: Okay and again that’s why I think having a team of experts like Hawkins Ash is critical because you guys are staying on top of all of this. I think the average individual theory is not reading the tax code and staying on top of all the new tax changes that’s what you do that’s what your team is. Therefore listeners connect with Jeff get with the team at Hawkins Ash.
Host: Jeff how would they do that?
Jeff: I would go to our website which is Hawkins Ash dot CPA or just listen to us or watch us on all of our social media sites including YouTube.
