As the calendar ticks over to a new year, here are several ways HR can help promote a healthy tax outlook for 2019 and beyond.
When we say “tax season,” most people’s minds jump immediately to April—and to, hopefully, a refund check. But if people wait until April to start assessing their tax health, they’ve missed out on four months of prepping to help maximize their tax profile.
While the responsibility of tax planning ultimately rests on employees, there are key things that employers can do to help them along. Corporate financial wellness doesn’t just have to mean employer-sponsored savings accounts, like 401(k)s, or access to policies like life and disability insurance.
53 percent of employees are stressed about their finances—and one key way that employers can help is to make sure that their employees are equipped with the knowledge and resources they need to help make good decisions and achieve their financial goals. And when households spend more on taxes than food and clothing combined, implementing a tax management plan could be a major key to getting employees on the right track.
As the calendar ticks over to January and a new year, there are several areas HR should communicate around to help promote a healthy tax outlook for 2019 and beyond:
Encourage evaluation of paycheck withholding and W-4 election
Very few Americans actually withhold the right amount from their paycheck to cover their taxes. According to the Government Accountability Office (GAO), nearly 75 percent of taxpayers will have withheld too much in 2018 and will receive a refund next year—but just over 20 percent, or 30 million people, are on track to owe money because they have not withheld enough. The latter number is higher than last year because of the recent Tax Cuts and Jobs Act.
The IRS expects individuals to meet safe harbor requirements for withholding, or making estimated payments, to avoid an underpayment penalty. If an individual’s withholding/estimated payments are projected to be too low, they may need to be increased to meet the safe harbor. Adjusting tax prepayments is generally accomplished by adjusting allowances on a W-4 or changing estimated payments that are made quarterly.
Employers should provide guidance on when and how (electronic or mail) employees should expect to receive a 2018 tax form for W-2 (by January 31, 2019) and 1099-R (by January 31, 2019). Receiving this form could act as a good opportunity for employees to reevaluate their withholdings and adjust as needed.
Promote savings in Traditional/Roth 401(k)s
Overall, investing in an IRA may provide a substantial tax benefit over a regular investment account because participants can defer or completely avoid paying taxes on growth. If your company provides a Roth 401(k), make sure you educate plan participants on the trade-off between Traditional and Roth 401(k)s. Traditional 401(k) contributions are typically pre-tax today and taxable in retirement while Roth 401(k) contributions are after-tax today and are tax-free in retirement.
Educate participants on the benefits of maxing out savings in 401(k)s and other tax-advantaged accounts
While not all financial planners believe you should encourage maxing out your 401(k) savings, participants who do are allowed to write them off of their income come tax time. Make sure your employees are fully educated on the positives and negatives of withdrawing from their 401(k) pre-retirement.
Remind employees that it’s not too late: they can still make one change to their 2018 taxes
While taxes are typically governed by money moves made during the calendar year, there is one exception: IRA contributions. If employees have not maxed out their IRA contributions for 2018, they can still contribute toward that cap up until the IRS tax filing date, which this year is April 15, 2019.
Taxes are among the largest expenses your employees will face—and if your employees aren’t aware of some of the ways that they can optimize their tax profile, they will likely be putting less money toward retirement accounts and other investments for their future. A small investment now in your employees’ financial health can pay off in the long run—to the advantage of everyone.