New Tax Law May Mean New W-4

Since passage of the Tax Cuts and Jobs Act, the Internal Revenue Service (IRS) has revised tax brackets and rates, updated income tax withholding tables, and issued a new form W-4 for 2018. For employers this means they had to begin using the new withholding tables by February 15, 2018. For employees it means you may want to check your current withholding to be sure the correct amount is being withheld.

Toward that end, the IRS recently went live with a new online Withholding Calculator it says allows taxpayers to:

  • Check current withholding amounts and ensure enough is being withheld to avoid a tax bill in 2019, or
  • Reduce current withholding and have more in your paycheck.

To perform this “paycheck checkup” the IRS recommends the following:

  • Obtain your most recent pay stubs and most recent completed Form 1040. Be sure your stubs show the amount of Federal income tax withheld so far in 2018.
  • Since the results you obtain from the withholding calculator will only be as accurate as the information provided, keep in mind that if your financial circumstances change during 2018, you should recalculate to be sure that your withholding remains correct.

The withholding calculator is available to everyone; however, the IRS is particularly recommending that people with more complex financial situations take advantage of it sooner than later.

These include:

  • Families with two incomes.
  • People working two or more jobs concurrently.
  • People who work only part of the year.
  • People with children and who take the Child Tax Credit.
  • People who itemized deductions in 2017.

For people with high incomes and complicated tax returns, the IRS recommends using the information in its Publication 505, Tax Withholding and Estimated Tax. Specifically, the IRS notes the following taxpayers should review Publication 505 to evaluate their W-4 and withholding for 2018.

  • Those who pay self-employment taxes.
  • Those who pay tax on unearned incomes from dependents.
  • Those who owe the alternative minimum tax.
  • Those who have capital gains and dividends.

Particularly important is the IRS’s “Special Note” about the Withholding Calculator which states, “If you follow the recommendations at the end of this Calculator and change you’re withholding for 2018, the IRS reminds you to be sure to recheck your withholding at the start of 2019. This is especially important if you reduce your withholding sometime during 2018. A mid-year withholding change in 2018 may have a different full-year impact in 2019. So, if you do not file a new Form W-4 for 2019, your withholding might be higher or lower than you intend. To help protect against having too little withheld in 2019, we encourage checking your withholding again early in 2019.”

For those using the Withholding Calculator, be advised it does not require personally-identifiable information like your name, Social Security number, address, or bank account numbers, and it does not save or record the information entered.

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