The Internal Revenue Service (IRS) released a one-page “Paycheck Checkup” flyer earlier this month. Its purpose is to encourage employers to remind employees that they should review their federal income tax withholding allowances. Doing so may help prevent a surprise at tax time next year. And by reviewing the withholdings at mid-year, employees who find they are under-withheld can “catch up” over 5+ months. If employees wait until year-end to review withholding allowances and find they owe additional taxes, they may not have enough time – or pay– to make up the difference and avoid penalties.
Updated Calculator and Worksheet Available
The Treasury Department issued updated withholding tables in January to reflect the changes made in the Tax Cuts and Jobs Act (TCJA) of 2018. In February, the IRS issued an updated withholding calculator and an updated worksheet so employees would check to see if they had the correct number of withholding allowances. Because the underlying foundation on which withholding allowances are based changed so drastically under the TCJA, a new calculator was provided for employees with more complex tax situations. For example, two major changes included the elimination of the personal exemption and expansion of eligibility for the child tax credit. The Paycheck Checkup flyer provides a comprehensive list of those identified as needing a review.
The Calculator Beats the Updated Publication 505 for Ease of Use
Taxpayers with complicated tax situations, and those who are gluttons for punishment, can review the updated, comprehensive, 59-page Publication 505. Otherwise, the withholding calculator guides taxpayers through the entire process. Drop-down boxes are provided to explain, for example, what a “qualifying child” is for purposes of the Child Tax Credit or the Earned Income Tax Credit. It’s recommended that employees have their most recent paystub and their 2017 federal tax return on hand to use the calculator correctly.
The IRS also recommends that taxpayers who change their withholding during 2018 re-check the amount at the beginning of 2019. Because a mid-year change will have a different impact on withholdings than one done at the start of the year, taxpayers could find themselves over- or under-withheld.