The South Carolina Department of Revenue’s tax withholding tables are scheduled once again to change this fall, but just when and how could be dependent on IRS changes to the federal withholding form.
The SCDOR began updating its withholding tables in late 2016, offering the first changes to the tables in 25 years for employers, payroll providers, and tax professionals on Jan. 1, 2017. The SCDOR plans to adjust the tables each year over the next decade.
At the same time, the IRS has been working on changes to its W-4 form, used to calculate withholding.
The W-4 revisions were required because of the Tax Cuts and Jobs Act of 2017, which among other things eliminated personal exemptions. Those changes prompted federal officials to warn taxpayers to re-examine their withholding to be sure they would not owe taxes.
The IRS released a draft W-4 proposal in May and plans to release another revision later this summer. A final version is expected to be released in November for use in 2020.
South Carolina’s withholding adjustments planned for later this year must wait until the IRS releases its final W-4 version.
The SCDOR’s withholding changes are aimed at reducing over-withholding, allowing workers to keep more in every paycheck.
In Fiscal Year 2015, over-withholding totaled $1.5 billion, or 21% of the state’s General Fund.
The impacts from over-withholding are significant:
- Unsound Budgeting: Lawmakers must account for over-withholding in their annual General Fund budget so the money can be sent back to taxpayers in refund checks.
- Unnecessary Administrative Costs: Collecting and later distributing the money over-withheld via refund checks wastes both time and tax dollars.
- Increased Risk: Large pools of money become targets of cybercriminals around the world who steal personal information online, use it to file fake returns, and then steal refunds. The more money that is withheld, the larger the target for cyber thieves, requiring increased time and resources to protect taxpayers and ensure refunds get to their rightful owners.
The over-withholding has been responsible for growing South Carolina refund checks, which in 2017 averaged $906.
In 2018, the average refund dropped to $901 and is expected to drop further over time as withholding tables are adjusted. Less tax is withheld, meaning employees see more money in every paycheck.
Federal officials also have been adjusting federal withholding tables. As a result, the average federal tax refund has also dropped.
As of May 10, according to the IRS, the average federal refund for 2019 was $2,729, compared to $2,778 in 2018.
Taxpayers generally should check their withholding early each year, when tax law has changed, or if they have experienced life changes, such as marriage, divorce, the birth of a child, a new job or raise, taxable income not subject to withholding, or changes in itemized deductions or tax credits.
For those who owed money on their returns in 2019, changing withholding can head off a tax bill in 2020. For more information on withholding, visit the SCDOR online at dor.sc.gov/withholding or subscribe to the SCDOR’s email lists at dor.sc.gov/emails.