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It may be time for a “paycheck checkup“. The new federal tax withholding calculator has been released reflecting changes under the Tax Cuts and Jobs Act. The calculator helps taxpayers determine the correct amount of income tax that should be withheld from their paychecks.
The paycheck checkup can protect against having too little or too much tax withheld, which can lead to a balance due or a penalty when 2018 income tax returns are processed. While tax reform includes lower tax rates for many working Americans, some changes may result in a higher tax bill for taxpayers with more complicated tax returns.
Click here to see information on the new withholding tables or click here for an interactive online version. (The interactive version will need Javascript activation to work properly.) The calculator will ask questions such as your estimated 2018 income, the number of children you may claim for the Child Tax Credit and Earned Income Tax Credit, and questions about other types of deductions. You should have your most recent pay stubs and income tax return on hand to help you fill out the most accurate information.
Taxpayers with simpler tax filings may not need to make any changes as long as their current Form W-4 filed with their employer has the correct amount of claimed deductions. Simple situations would include taxpayers who have only one job, have no dependents, and do not claim itemized deductions or tax credits.
Taxpayers who need to change the amount of tax withheld from their paychecks should complete a new Form W-4 and submit that to their employer.
Taxpayers who file more complex tax returns may need to use a different tool to calculate withholding amounts, including the IRS tax computation worksheet available in Publication 505 or should contact their tax planning advisor to ensure they are paying the correct amount of taxes on their income. Taxpayers that may need this more advanced review include people who are self-employed, pay the alternative minimum tax, pay tax on unearned income from dependents or taxpayers reporting capital gains or dividends.
The paycheck checkup is encouraged for all taxpayers, but is especially important under the new tax laws for taxpayers who are part of two-income families, claim tax credits and itemized deductions, and who support older dependents. Those who have two or more jobs or who work for only part of the year should also review their paycheck withholding to ensure the proper amount of tax is being withheld in total from all employers.
If you have questions about tax withholding or need the advice of tax planning professional, please contact us at McRuer CPAs online or call 816.741.7882.
