Taxpayers Encouraged to Get Paycheck Check Up
If it has been a while since you have looked at your pay stub or reviewed your tax withholding, stop what you’re doing and make a point to do it today. Circumstances change and with the new Tax Cuts and Job Act (TCJA) in December 2017, there are even more pressing reasons to perform a quick paycheck review. According to the IRS, employers should encourage employees to use the new IRS withholding calculator at www.IRS.gov/w4app to make sure that their federal income tax withholding is in line with the changes made by TCIA. The danger is that with the changes, employees may be unknowingly withholding too much or too little and will end up owing much more than they planned for 2018 income taxes. The IRS has also released a set of special plain language Tax Reform Tax Tips, a You Tube video series and other special efforts to help taxpayers better understand the implications of the law.
Among the groups who should check their withholding are:
- 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 income and more complex tax returns.
- People with large tax refunds or large tax bills for 2017.
How does the calculator work?
The calculator asks questions about employment history including even partial year or short employment periods. If the taxpayer has more than one part-year job, the withholding calculator can account for this as well, whereas the paper W-4 worksheets do not distinguish between part and full year jobs.
Two-income families, multiple job holders
For individuals with more complex tax profiles, such as two or more incomes or multiple jobs, the risks of being under withheld is even greater. Users can even use the withholding calculator to enter income from multiple job or from two employed spouses. It can also ensure that taxpayers apply their 2018 tax deductions, adjustments and credits once rather than multiple times with different employers.
Plan for Different Standard Deductions
The TCJA nearly doubled standard deductions and changed several of the itemized deductions for 2018. Individuals who previously itemized deductions on their federal income tax filing may not be able itemize, but may find that they can take the standard deduction, further affecting how much tax payers may need to have withheld. “With all of the changes this year, it is especially important for taxpayers to fully understand the financial impact on their federal withholding rather than waiting,” says Dave Flynn, owner of Flynn Accounting Solutions in Stoneham, MA. “There’s no reason to have an expensive surprise in next April’s tax filing, when a simple check at the IRS.gov website can help taxpayers correct their withholding amounts now,” he continues.
To make a change to the withholding now, taxpayers will need to complete a new Form W-4 Employee’s Withholding Allowance Certificate to their employer. Waiting until later in the year, means that there will be fewer pay periods remaining to make any necessary correction deductions before year end – which could seriously impact on each paycheck. Taxpayers with even more complicated situations may want to reach out for guidance.
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Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.