As we have shared before, the IRS changed the withholding tables earlier this year after the passage of the Tax Cuts and Jobs Act of 2017. As a result, a recent poll of members of the Pennsylvania Institute of Certified Public Accountants (PICPA) revealed that a large majority of their clients needed to adjust their tax withholdings. In fact, most of their clients needed to increase their withholdings in order to avoid a large tax bill when they file their 2018 tax returns.
How does this affect taxpayers?
The IRS has been promoting its “Paycheck Checkup” program for the past several months. You can find it at https://www.irs.gov/newsroom/time-for-a-paycheck-checkup. The checkup includes a withholding calculator to help you determine how much should be withheld from your paycheck.
Checking your tax withholdings can help protect you against not having enough withheld and dealing with a large tax bill or penalty come tax time next year. It will also show you if you are withholding too much. Some taxpayers don’t mind over-withholding and receiving a refund on their tax return. Others prefer to have as much money in their paycheck as possible. The decision is up to you. If you do need to adjust your withholdings, be sure to fill out a new Form W-4 Employee’s Withholding Allowance Certificate and provide it to your employer.
If you are going to use the Calculator to estimate your withholdings, be sure to have the following information handy:
- Your 2018 estimated income
- The number of children you will claim for the Child Tax Credit and Earned Income Tax Credit
- Other items that will affect your 2018 taxes (dividends, capital gains/losses, etc.)
- Your most recent pay stubs
- Your most recent income tax return or completed Form 1040
The Calcultor’s results are only as accurate as the information you provide. Because some tax positions are more complex and cannot easily be calculated, we recommend that our clients review their withholdings with a member of our team each year to make sure that there will not be any unpleasant surprises when the time comes to file their tax returns. Our job is to make sure that you have all the information you need to make the best decisions for your tax position and financial future.