The Governmental Accounting Office (GAO) published a report recently that showed 21 percent of taxpayers are potentially under-withholding taxes for 2018. This means that while many employees are receiving larger paychecks this year, they may owe tax when they file their returns in April 2019.
The IRS is encouraging taxpayers to do a withholding checkup on the IRS website here.
We encourage all of our clients to perform this checkup as soon as possible, in order to adjust their withholding as necessary for the remainder of the year. If you would like to have a personal tax projection prepared, please contact your advisor at Aldrich to schedule a mid-year checkup.
The full report from the GAO can be found here
Withholding Tables Reflect Recently Enacted Tax Reform
The IRS released Notice 1036, Early Release Copies of the 2018 Percentage Method Tables for Income Tax Withholding, which updated the income tax withholding tables for 2018 to reflect changes made by the TCJA, including major changes to the income tax rates, an increased standard deduction, and the elimination of personal exemptions, effective for tax years beginning after December 31, 2017. The IRS also provided information that explained the use of the new tables and related subjects. The 2018 federal withholding tables, which were issued later than usual due to TCJA’s enactment, must be used beginning on February 15, 2018. That is also the deadline for changing the optional flat rate for withholding on supplemental wage payments of $1 million or less (bonuses, commissions, etc.) from 25% to 22%.
The IRS also released an updated withholding calculator on its website, as well as a new version of Form W-4, to help taxpayers check their 2018 withholding in light of changes made by the TCJA. IRS also issued a series of frequently asked questions on the withholding calculator. While the updated withholding tables are designed to work with existing Forms W-4 that employers have on file, many taxpayers (such as those with children or multiple jobs, and those who itemized deductions under prior law) are affected by the new law in ways that can’t be accounted for in the new withholding tables. The IRS encourages employees to use the withholding calculator and new form to perform a quick paycheck checkup to help protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time in 2019. It can also prevent employees from having too much tax withheld.
If you have any questions or concerns about your withholdings or paycheck checkup, please don’t hesitate to contact an advisor.