The IRS has released a new tax withholding calculator, as well as a new version of Form W-4. The new withholding calculator will let employees check that their tax withholding is proper following passage of the Tax Cuts and Jobs Act (P.L. 115-95)
The Tax Cuts and Jobs Act made major changes to the tax law. Some of those changes included increasing the standard deduction, removing personal exemptions, increasing the child tax credit, limiting or discontinuing certain deductions and changing the tax rates and brackets.
The new withholding calculator provides employees with the information they need to fill out a new Form W-4, Employee’s Withholding Allowance Certificate. Employees submit Form W-4 to their employers to adjust their income tax withholding. A withholding checkup can prevent employees from having too little or too much tax withheld.
Among the employees who should conduct a withholding checkup are:
• Two-income families.
• Individuals with two or more jobs at the same time or who only work for part of the year.
• Individuals with children who claim credits such as the Child Tax Credit.
• Individuals who itemized deductions in 2017.
• Individuals with high incomes and more complex tax returns.
The new withholding calculator is not meant to be used by taxpayers with more complex situations, including the self-employed, individuals who owe the alternative minimum tax or have capital gains. Those taxpayers may need to wait until the IRS updates Publication 505, Tax Withholding and Estimated Tax later in 2018.
Using the Withholding Calculator
The calculator asks taxpayers to estimate their 2018 income and other items that affect their taxes. Therefore, individuals should have a copy of their 2016 or 2017 tax return handy, along with a recent pay stub before using the calculator.
Taxpayers can use the calculator results to determine if they need to file a new Form W-4. Also, the calculator will help taxpayers to decide what information to put on the new form. Taxpayers who complete a new Form W-4 should submit it to their employer as soon as possible. In addition, taxpayers are encouraged to come back to the calculator as their circumstances change during the year to check their withholding.
The IRS’s withholding calculator’s results are only as accurate as the information entered. In addition, the IRS does not request personally-identifiable information such as name, Social Security number, address or bank account numbers. Moreover, the IRS does not save or record the information entered on the calculator. Further, taxpayers should watch out for tax scams and remember the IRS will not send email related to the calculator or the information the taxpayer entered into the calculator.
Finally, the IRS has provided additional information in the form of frequently asked questions.
The Tax Cuts and Jobs Act made major changes to the tax law, contact your MCB Tax Advisor to help with these changes.