Do I Need to Check My Withholdings?
The Tax Cuts and Jobs Act passed in December made some major changes to tax law, including increasing the standard deduction, removing personal exemptions, increasing the child tax credit, and changing tax rates and brackets. In response, all employees should perform a quick check to ensure they are withholding the correct amount from their paychecks. Keep in mind that it is particularly important to re-check your income tax withholding if you:
- Itemize Deductions
- Own A Home
- Are Self-Employed
- Have A Situation That Complicates A Tax Return
Using the Withholding Calculator and W-4 Form
Although the Withholding Calculator is a powerful and valuable tool, its results are only as good as the data put into it! Before starting, take a moment to gather your most recent pay stub (make sure it reflects your Federal income tax withheld so far this year!) and a copy of your most recent tax return. Once you have all your documents together, you’re ready to get started!
- Did your information change? Use your results to complete a new Form W-4 and submit it to your employer as soon as possible.
IMPORTANT NOTE: Although the Withholding Calculator will be sufficient for most taxpayers, individuals with more complex tax situations should instead use the instructions in Publication 505, Tax Withholding and Estimated Tax. These situations may include employees who:
- Claim the Child Tax Credit, the Earned Income Tax Credit, or other credits
- Have dividends or capital gains from securities held in taxable accounts
- Owe self-employment tax, alternative minimum tax, or tax on unearned income of dependents
- Have high incomes (or two incomes) and more complex tax returns
- Made itemized deductions in 2017
- Work only part of the year
Withholding: Then vs. Now
In the past, employees simply put a “1” for themselves, another “1” if they were married, and additional “1’s” for any dependent children. Once completed, the employee would add those up and claim a withholding exemption for the amount of total exemptions listed. Because the new 2018 law changes the number of exemptions per person, affected employees will need to complete a new W-4 form. It’s better to take this step as soon as possible since your withholding(s) take place throughout the year.
What Do You Think?
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Disclaimer: Southland Data Processing, Inc. (“SDP”) is not an accounting firm or tax advisor. The above article is intended for informational purposes only and should not be relied upon in determining one’s withholding amount. Applicability of the guidelines above may differ substantially in individual situations. Please consult with your accountant or tax advisor prior to making any adjustments. SDP is not responsible for any inadvertent errors that may occur in the withholding calculation process.