Helps Employees Withhold the Correct Amount from Their Paychecks
If you’ve noticed a bump in your take home pay since the new withholding tables went into effect, you’re not alone. The Treasury Department estimated that 90% of taxpayers would see higher paychecks once the new tables were implemented. But, depending on your situation, you could be under-withheld. When you file your 2018 tax return next year, you may owe more taxes and potentially could be subject to underpayment penalties.
Conversely, if you haven’t adjusted your withholding allowances in a while, you could be over-withheld and get a big refund check next tax season. (More than 7 in 10 taxpayers fall into this category, receiving an average refund of over $2800!) While it may be nice to see that extra influx of cash once a year, perhaps you would be better served with a little more money each pay period to spend or invest as you wish.
The updated withholding calculator put out by the Internal Revenue Service (IRS) yesterday will help you figure out if you’re getting too little—or too much—taken out of your paycheck using the new tax tables. A revised withholding worksheet was also issued. Either tool can help you determine how many withholding allowances you should claim on your Form W-4, which tells your employer how much to withhold from your paycheck each pay period.
According to the IRS, the 2018 tax tables were designed to provide the correct amount of withholding for people with simpler tax situations. For example, single or married people with only one job, with no dependents, who do not claim itemized deductions, adjustments to income, or tax credits are considered to have simpler tax situations.
Filers with more complicated tax situations may need to revise their withholding, because the underlying foundation on which withholding allowances are based changed under the December 2017 legislation. Elimination of the personal exemption and expansion of eligibility for child tax credits to higher-income earners are two of the changes that impact withholding. Other groups singled out as needing to check their withholding allowances with the new tools include families with more than one earner, taxpayers who itemized deductions in 2017 and people with:
Publication 505, Tax Withholding and Estimated Tax, is recommended for use by taxpayers with more complex tax situations, such as people with dividends and capital gains, as well as those who owe:
The IRS expects to make Publication 505 available on IRS.gov in early spring. Organizations may want to make their employees aware of the new withholding calculator and other tools available to correctly estimate withholding allowances. Corporate Payroll Services clients who receive updated Forms W-4 from their employees should provide the updated information to their Payroll Specialists so withholding allowances will be correctly reflected in their payroll calculations.
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