Q: Do all employees have to check their withholding taxes?
Oh yeah. Employees should check withholding taxes at the beginning of each year or when their circumstances change. This year has become even more important for people paycheck checkup, after changes in tax law through the tax reform “Tax Cuts and Jobs Act”. With the new tax laws, it has become especially important for some people to check their tax withholding. These include individuals who belong to dual-income households who previously made itemized deductions, who hold two or more jobs, work part-of-the-year, have dependents, have high incomes, have complex tax returns, or have had a large tax refund or large tax bill in 2017. Using the Withholding Calculator- the best way for employees to check that too much or too little tax is deducted from their wages.
Q: Why are employees advised to check their withholding taxes?
A: The IRS always recommends that employees check their withholding tax every year to ensure they always have the correct amount deducted from their paychecks. This year, it is even more important than ever before to carry out such a check, after significant changes in tax law through the new tax reform “Tax Cuts and Jobs Act”.Among other things, the new legislation increased the standard deduction, eliminated the tax-free portion of an individual’s income, increased the child tax credit, limited or eliminated some tax deductions, and changed tax rates and tax brackets. These changes mean that now is a particularly good time for taxpayers to conduct a paycheck checkup to review their tax withholding. In addition, if a taxpayer experiences changes that affect the amount of his/her tax credits (considered in determining the employer’s withholding from wages), changes such as a divorce, they are advised to check their withholding and, if necessary, provide their employer with a new tax
Q: Are there any criteria among employees that increase the likelihood of changes in their tax withholding in 2018?
Oh yeah. For people with a simpler tax situation, the 2018 tax withholding tables are designed to ensure the correct amount of withholding, avoiding underpaying and overpaying tax withholding. This means that people with simple situations do not need to make any changes, assuming their current Form W-4 , which is available from their employer, has been completed according to the instructions on that tax form. Simple situations include single and married individuals, married couples who only have one job, who have no dependents, and who do not qualify for itemized deductions, income tax changes, or tax credits.
But many have more difficult financial situations, and such individuals may need to reconsider the amount of tax withheld from their wages. Given the changes brought about by the new tax laws, such individuals need to use the IRS.gov Withholding Calculator to verify that they have the correct amount of withholding taxes.
Among groups with more difficult financial situations who are advised to check their tax withholding are:
- Families with two sources of income.
- People who work two or more jobs or who only work part of the year.
- People with children who claim tax credits, such as a child tax credit.
- People with adult dependents, including children aged 17 and over.
- People who used itemized deductions in 2017.
- People with higher incomes and more complex tax returns.
- People with large tax returns or large tax bills for 2017.
Taxpayers with more complex situations may need to use Publication No. 505 , Withholding and Estimated Taxes, instead of the Withholding Calculator. For example, this includes people who must pay self-employment tax, the alternative minimum tax, tax on unearned income from dependents, and people with capital gains or dividend income.
Q: When should taxpayers use the 2018 Withholding Calculator?
A: As soon as possible. Withholding taxes occurs throughout the year. An employee who needs to make adjustments to their withholding is advised to do so as soon as possible to allow as much time as possible to evenly withhold taxes throughout the remainder of that year. But waiting until the end of the year means there are fewer pay periods in which tax changes can be made, which in turn can have a greater impact on each paycheck. However, taxpayers are encouraged to use the Withholding Calculator with a copy of their completed 2017 or 2016 tax return. Since taxpayers are required to estimate certain amounts for their situation in 2018, having similar information from last year will make it easier to use Withholding tax calculator .
Q: How can employees change the amount of tax withheld from their paychecks?
A: Taxpayers who need to change the amount of tax withheld from their paycheck must complete a Form W-4 and submit it to their employer. Some employers allow employees to file Form W-4 electronically. Employees must take this step every time they become aware that they need to withhold more or less taxes from their paycheck. This may occur after using the Withholding Calculator, reviewing the tax Form W-4 worksheets with a tax professional.
Q: Do the withholding changes affect 2017 tax returns due in 2018?
Oh no. Withholding changes do not affect 2017 tax returns. However, a completed 2017 tax return will make it easier, when using the Withholding Calculator, to verify the correct amount of taxes to withhold in 2018. The withholding changes will affect the 2018 tax returns that taxpayers file in 2019.
Q: Tax rates have been reduced under the new law. Why should people check their withholding taxes?
A: The new tax withholding tables released in January reflect lower tax rates, but other tax law changes may affect 2018 taxes. An immediate tax withholding check can help an employee see if their employer is withholding the correct amount of tax from their paycheck.
Q: If someone is used to always getting a refund of overpaid taxes, then why would they need to check their tax withholding?
A: While the number of taxpayers receiving overpaid tax refunds in 2019 is expected to continue to be about the same as in previous years, changes in tax law make it even more important to check withholding taxes this year. On the one hand, taking this step can help protect against under-taxing and facing an unexpected tax bill or penalty at tax time. On the other hand, with an average refund over $2,800, some people may prefer less tax withheld up front and receive more in their wages.
The IRS asks employees to use the Tax Withholding Calculator to check their situation and find out if they have the right amount of tax withholding. This is especially true for those individuals who previously made itemized tax deductions, who have two or more employees in the household, who have dependents, work only part of the year, have high incomes, or had a large tax refund or large tax bill in 2017.
Q: Are some taxpayers at risk of under-taxing?
A: Some people have more complex tax circumstances and therefore may face the possibility of insufficient tax withholding. For example, people who previously had itemized tax deductions, who have two or more employees in their household, or who have dependents aged 17 or older, are especially encouraged to review their tax circumstances for insufficient withholding. See Q&A 3. But the IRS asks all employees to check their withholding taxes. The IRS has updated the 2018 Form W-4 and Withholding Calculator to help with this process.
Q: Do people often withhold insufficient taxes?
A: Most employees overpay taxes by deducting from their paycheck. More than seven out of ten taxpayers had overpaid taxes for the 2016 tax year, which means they received refunds when they filed their tax returns in 2017. In particular, taxpayers with children under the age of 17 may notice that their tax refund increases as a result of the new tax year. legislation. These taxpayers may want to use the Withholding Calculator to find out how they can reduce their withholding and get more money in their paychecks during the year instead of next year’s tax season.
Q: What are the penalties for insufficient tax withholding?
A: By law, an estimated tax penalty is usually applied in cases where a taxpayer paid insufficient tax during the tax year. Penalty is calculated based on the interest rate charged by the IRS on unpaid tax. For most people, avoiding a tax penalty means ensuring that at least 90 percent of their total tax liability is paid during the year—either by withholding income tax or by paying an estimated tax amount quarterly. Exceptions to the penalty or special rules apply to certain groups of taxpayers, such as farmers, fishermen, victims of accidents and natural disasters, those who have recently become disabled, recently retired, those who base their payments on last year’s tax, and those who who receive uneven income throughout the year.
Q: Does the IRS prefer situations in which people receive tax refunds?
A: Receiving tax refunds is a personal choice for taxpayers. The IRS is committed to helping people understand their tax responsibilities and explain to them how withholding taxes affects their pay. The IRS also wants to help ensure a smooth tax filing process, including refunds to taxpayers as soon as possible. The IRS always asks people to plan so they don’t get an unexpected tax bill or even penalties for not having enough withholding taxes for the year.