Taxpayers who haven’t checked their withholding should use the Withholding Calculator ASAP
The Tax Cuts and Jobs Act, which was passed last year, brought many tax law changes. With that in mind, a checkup is important for taxpayers with high incomes and complex returns because they are often affected by more of these changes than someone with a simpler return. The IRS recommends taxpayers use the Withholding Calculator to do a “Paycheck Checkup” as soon as possible. This will help taxpayers verify that they are having the correct amount of income tax withheld from their paychecks. The IRS has updated the Withholding Calculator tool on IRS.gov to reflect the changes in the Tax Cuts and Jobs Act.
Doing a checkup can help protect against having too little tax withheld and facing an unexpected tax bill or penalty in April. Some taxpayers might prefer to have less tax withheld up front and receive more in their paychecks, which would reduce their tax refund next year. Although late in 2018, the checkup can still help avoid a big surprise at tax time, and allow taxpayers to start 2019 with correct withholding amounts.
While it’s a good idea for everyone to check their withholding, it’s especially important for these people to use the Withholding Calculator to make sure they have the right amount of tax withheld:
• High income taxpayers
• Two-income families
• People with two or more jobs at the same time or who only work for part of the year
• People who claim credits such as the Child Tax Credit
• People who claim older dependents, including children age 17 or over
• People who itemized deductions in 2017
• People with large tax refunds or large tax bills for 2017
Here are some of the law changes that could affect these taxpayers:
• The law reduced tax rates and changed tax brackets.
• The standard deduction nearly doubled to $24,000 for joint filers and $12,000 for singles.
• A $10,000 cap on deductions for state and local property, sales and income taxes.
• The child tax credit is bigger and the phaseout amount is higher.
• The law added a new tax credit for dependents who can’t be claimed for the child tax credit.
• The law removed personal exemptions.
• New limits on deductions for some mortgage interest and home equity debt.
• Higher limits on the percent of income a taxpayer can deduct as charitable contributions.
• No deductions for miscellaneous itemized deductions. In prior years, these had to exceed 2 percent of the taxpayer’s AGI to qualify. These included investment expenses and unreimbursed employee expenses such as travel, meals, entertainment and uniforms.
If a taxpayer determines they need to adjust their withholdings now, they can prevent an unexpected tax bill and penalties next year at tax time. Taxpayers need to adjust their withholding as soon as possible for an even withholding amount throughout the rest of the year. Employees can use the results from the Withholding Calculator or Publication 505 to help determine if they should complete a new Form W-4, Employee’s Withholding Allowance Certificate, and what information to include. Taxpayers also need to determine if they should make adjustments to their state or local withholding. They can contact their state’s department of revenue to learn more.
Remember, the Withholding Calculator does not ask the user for personally identifiable information, such as name, social security number, address, or bank account numbers. The IRS does not save or record the information the taxpayer enters in the calculator. When you use the Withholding Calculator, you will want to have your most recent pay stubs and most recent income tax returns available for reference.
Although the Withholding Calculator may work well in some situations, more complex cases may require a more detailed computation. If you have questions or wish to have your withholdings or estimated tax payments reviewed, please contact your WNDE tax professional.
Video tax tip from the IRS: IRS Withholding Calculator How To English
Withholding Calculator Frequently Asked Questions
Tax Reform page on IRS.gov