Sunday, July 8, 2018

Check Your Withholding Soon


The IRS advises that taxpayers who owed additional tax when they filed their federal return earlier this year should do a “paycheck checkup” as soon as possible. The IRS Withholding Calculator and Publication 505, Tax Withholding and Estimated Tax, can help these taxpayers do a checkup and avoid another possibly bigger tax bill next year.

Following the Tax Cuts and Jobs Act, which was passed last year, there are many changes to the tax law that could affect these taxpayers. Doing a checkup now will help them make sure their current tax withholding is in line with their 2018 tax situation.

Here are some things for these taxpayers to keep in mind:
  • These taxpayers may not have had enough taxes withheld from their pay throughout 2017, causing them to owe in 2018.
  • If they continue to have too little withheld from their paychecks the rest of this year, they could find themselves in the same situation again next year. 
  • They might even end up with a larger tax bill when they file their 2018 return next year. 
  • It’s important to remember that if a taxpayer underpays their tax too much, penalties and interest can apply.
  • The Withholding Calculator can help taxpayers apply the new law to their situation. The results from the calculator can help them make an informed decision about whether to change their withholding this year. These taxpayers need to adjust their withholding as soon as possible for an even withholding amount throughout the rest of the year.
  • Waiting means there are fewer pay periods to withhold the necessary federal tax, which could have a bigger effect on each paycheck.
  • Taxpayers with more complex situations might find that using Publication 505 is a better option for figuring their withholding than using the Withholding Calculator. Publication 505 works better for employees who owe self-employment tax, the alternative minimum tax, or tax on unearned income from dependents. It can also help those who receive non-wage income such as dividends, capital gains, rents and royalties.


Underpayment penalties
  • To avoid paying the estimated tax penalty, taxpayers should ensure they have enough tax withheld from their paychecks and appropriate estimated tax payments. Ordinarily, taxpayers can avoid this penalty by paying at least 90 percent of their tax during the year.
  • If taxpayers expect to owe at least $1,000 in tax after subtracting withholding and refundable credits, they should make estimated tax payments.
Using the Withholding Calculator or Publication 505
  • Taxpayers should have their completed 2017 tax return handy to help estimate the amount of income, deductions, adjustments and credits to enter. They’ll also need their most recent pay stubs to help compute their withholding to date this year. Results from these tools depend on the accuracy of information a taxpayer provides.
  • Employees can use the results from the Withholding Calculator or Publication 505 to help determine if they should complete a new Form W-4, Employee’s Withholding Allowance Certificate, and, if so, what information to include on the form.
  • The calculator may also be helpful to recipients of pension and annuity income. These recipients can change their withholding by filling out Form W-4P and giving it to their payer.
  • If a taxpayer’s personal circumstances change during the year, they should re-check their withholding.
Adjusting withholding
  • If an employee determines they should adjust their withholding, they should complete a new Form W-4 and submit it to their employer as soon as possible.
  • Some employers have an electronic method to update a Form W-4.
  • Taxpayers who change their 2018 withholding should recheck their withholding at the start of 2019. A mid-year withholding change in 2018 may have a different full-year impact in 2019, so if taxpayers don’t submit a new Form W-4 for 2019, their withholding might be higher or lower than intended.
  • If an employee has a change in personal circumstances that reduces the number of withholding allowances they can claim, they must submit a new Form W-4 within 10 days of the change.
  • The fewer withholding allowances an employee enters on the Form W-4, the higher their tax withholding will be. Entering “0” or “1” on line 5 of the Form W-4 means more tax will be withheld; entering a bigger number means less tax will be withheld.
Additional information
  • The Withholding Calculator does not request personally identifiable information such as name, Social Security number, address or bank account numbers. The IRS does not save or record the information entered on the calculator. Taxpayers should be aware of tax scams, especially via email or phone and cybercriminals impersonating the IRS. The IRS does not send emails related to the calculator or the information entered in it.
  • The calculator and Publication 505 are not tax-planning tools. Taxpayers needing advice regarding the new tax law and personal situations should consult a trusted tax professional.


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