This week, the Internal Revenue Service (IRS) is urging taxpayers to perform a “Paycheck Checkup” to ensure they are withholding the correct amount of tax under the Tax Cuts and Jobs Act.
The new Act, passed in December, made drastic changes to the existing tax law, including increasing the standard deduction, removing personal exemptions, increasing the child tax credit, limiting or discontinuing certain deductions, and changing the tax rates and brackets.
As a result of these changes, many employees saw an increase in their net pay earlier this year. However, taxpayers with what the IRS considers “complex” tax situations may now be at risk of under withholding in 2018 and may face having to pay that extra money back at tax time.
What is Considered a “Complex” Tax Situation?
While all taxpayers are advised to check their withholding, taxpayers who are most at risk of under withholding in 2018 due to the new tax law include:
- Two-income families
- People working two or more jobs or who only work for part of the year
- People with children who claim credits such as the Child Tax Credit
- People with older dependents, including children age 17 or older
- People who itemized deductions in 2017
- People with high incomes and more complex tax returns
- People with large tax refunds or large tax bills for 2017
How to Perform a Paycheck Checkup
Taxpayers who fall under the above categories can use the IRS’ new Withholding Calculator to estimate their 2018 income tax and decide if they need to change their withholding with their employer.
Taxpayers are advised to gather the following before using the calculator:
- The most recent paystub reflecting 2018 Year-to-Date Federal withholding tax
- A copy of the 2017 tax return is preferred. If 2017 is not complete, taxpayers can use 2016. Information on the return will help estimate income for 2018.
The calculator does not request personally-identifiable information, such as name, social security number, address or bank account numbers. Similarly, the IRS does not save or record the information entered.
How to Submit Withholding Changes
If changes to withholding should be made, the Withholding Calculator provides taxpayers with the information they need to fill out a new Form W-4. Taxpayers should submit the completed Form W-4 to their employer.
For more details on withholding issues, taxpayers are encouraged to visit IRS.gov, or view the below IRS resources:
IRS YouTube Videos: