Did you owe additional tax when you filed your 2017 Form 1040 federal tax return earlier this year? If so, you can avoid an unexpected tax bill this year by doing a “paycheck checkup” as soon as possible. Even if you did not owe any tax, it still would be a good idea to do a checkup.
The Effect of Tax Law Changes on Individuals
In December 2017, The Tax Cuts and Jobs Act was passed, creating major changes to the tax law. Individual provisions that were changed include:
- Increasing standard deduction
- Removing personal exemptions
- Increasing the Child Tax Credit
- Discontinuing or limiting certain deductions
- Changing tax rates and brackets
Because of this change many taxpayers were happy to see increases in their paychecks due to updated withholding information and tables and a result of the new law.
Resources to Perform a Paycheck Checkup
Because this is such a major change, there could be a significant impact to your tax refund or balance due with your 2018 individual return. That is why the IRS is encouraging every employee to take advantage of the IRS Withholding Calculator, to do a “paycheck checkup,” so that you can ensure the correct amount of tax is being taking out of your pay.
- The Withholding Calculator can help taxpayers apply the new law to their specific financial situation and make informed decisions about any necessary adjustments to their withholding. For example:
- Increasing your withholding will help protect against having too little withheld and facing a tax bill or even penalties at tax time next year.
- Or, you may prefer to have less tax withheld upfront and receive more in your paycheck now.
- Taxpayers with more complex situations may need to use Publication 505.
This publication includes worksheets and examples to guide taxpayers through their particular situations.
Using the Withholding Calculator:
- Taxpayers should have their completed 2017 Form 1040 handy; this will help estimate the amount of income, deductions, adjustments and credits to enter.
- Gather your most recent pay stub to help compute your withholding to date this year.
- If you determine that you need to adjust your withholding you should complete a new Form W-4 and give it to your employer.
- Remember, the fewer withholding allowances you enter on the Form W-4, the higher the tax withholding will be. Entering “0” or “1” on line 5 of the Form W-4 means more tax will be withheld; entering a bigger number means less tax will be withheld.
- The IRS does not save or record the information entered on the calculator.
- The Withholding Calculator does not request personally identifiable information such as your name, Social Security number, address or bank accounts.
- If you do make change to your 2018 withholding, the IRS wants to remind you to be sure to recheck your withholding at the start of 2019, especially if you made a reduction to your withholding in the middle of 2018.
The calculator is to be used for estimating withholdings, but it is not a tax planning tool. Taxpayers that want advice regarding the new law and how it affects their personal tax situation ought to consult with their personal tax advisor.