The IRS has been pushing taxpayers to perform a “paycheck checkup” this week to ensure the correct amount of tax is being taken out. Having too much taken out of your paycheck could mean giving too much of your money to the government to “hold” while having too little taken out could mean owing money come tax time. Our sister company, Peoples Tax, encourages clients check their withholdings every year in the event that something has changed that would require an adjustment.
As you know, changes to the tax law are coming – and that includes the withholding amounts for 2018. The Tax Cuts and Jobs Act (TCJA) increased the standard deduction, removed personal exemptions, increased the child tax credit, limiting or discontinuing certain deductions and changed the tax rates and brackets. Taxpayers who don’t perform a “paycheck checkup” could end up in financial trouble when filing tax year 2018 returns.
How to do a “Paycheck Checkup”
The IRS has a Withholding Calculator that gives employees the information they need to fill out a new Form W-4, Employee’s Withholding Allowance Certificate. Taxpayers should gather their most recent pay stub and check to make sure it reflects the amount of Federal income tax withheld so far in 2018 before using the withholding calculator. They should also have a completed copy of their 2017 (or possibly 2016) tax return handy.
Here are some tips for using the Withholding Calculator. Taxpayers should:
- Use their most recent pay stubs and federal income tax return to help estimate income and other items for 2018. Keep in mind the new tax law made significant changes to itemized deductions.
- Fill in all information that applies to their situations.
- Make estimates when necessary, but keep in mind the results are only as accurate as the information entered.
- Check the information links embedded in the program whenever taxpayers have questions.
- Print the final screen that summarizes their entries and the results. Use the results from the Withholding Calculator to determine if they should complete a new Form W-4, Employee’s Withholding Allowance Certificate.
The IRS has plenty of information to share with clients on performing a “Paycheck Checkup”.
For updated withholding tables, see IRS Notice 1036.
All this week, the IRS will be releasing information in their “Paycheck Checkup” series. The series will include:
- Tax reform tax tips
- Special news releases this week and in the weeks ahead
- YouTube videos
- Social media efforts about #PaycheckCheckup, including an IRS Thunderclap.
As a tax professionals, we should be informing, educating, and encouraging clients on all things related to the new tax law. This is just one of many items that may affect your clients. You can help the IRS spread the word on social media about the importance of a Paycheck Checkup by signing up for their Thunderclap here: http://thndr.me/7BvGKI. A Thunderclap is a campaign where people “donate their social reach”. Once the campaign has reached its goal, the message will be posted on behalf of all who signed-up to support it.