The IRS has released an updated Withholding Calculator and a new version of Form W-4 to help taxpayers check their 2018 tax withholding. Taxpayers will find these tools beneficial in making sure they have the right amount of tax taken out of their paychecks.
The IRS is currently advising employees to ensure their paychecks have the correct amount of tax withheld for their personal situation.
This encouragement stems from changes in the new tax law. The Tax Cuts and Jobs Act made the following changes:
- Increased the standard deduction
- Removed personal exemptions
- Increased child tax credit
- Limited or discontinued certain deductions
- Changed the tax rates and brackets
The Withholding Calculator
According to the IRS, “withholding issues can be complicated, and the calculator is designed to help employees make changes based on their personal financial situation. Taking a few minutes can help taxpayers ensure they don’t have too little – or too much – withheld from their paycheck.” An employee can help protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time in 2019.
The Withholding Calculator will ask taxpayers to provide their 2018 income and other items affecting their taxes. This includes the number of children claimed on the Child Tax Credit, Earned Income Tax Credit, and other items.
These changes do not impact 2017 tax returns that are due this April. However, having a completed 2017 tax return can help taxpayers work with the calculator to determine their proper withholding for 2018 and avoid issues when they file next year.
As a first step to reflect the tax law changes, the IRS released new withholding tables in January. These tables were designed to produce the correct amount of tax withholding. This means that people with simple situations (singles and married couples with only one job, no dependents, and who have not claimed itemized deductions, adjustments to income, or tax credits) might not need to make any changes.
People with more complicated financial situations might need to revise their W-4 and utilize the calculator.
It is important for the following groups to check their withholding:
- Two-income families
- People with two or more jobs at the same time or who only work for part of the year
- People with children who claim credits such as the Child Tax Credit
- People who itemized deductions in 2017
- People with high incomes and more complex tax returns
If you are an individual who owes self-employment tax, the alternative minimum tax, or tax on unearned income from dependents, or you have capital gains and dividends, it might be beneficial to use Publication 505, Tax Withholding and Estimated Tax, expected to be available on IRS.gov in early spring, instead of the calculator.