How to Calculate Withholding Following New Tax Law

On February 28, 2018, the IRS officially announced the release of a completely new IRS Form W-4 and along with it a new “withholding calculator designed to help individual taxpayers determine whether the 2018 withholdings are correct, or need be adjusted.” The new changes to IRS regulations include changes to the individual income tax rates and brackets. There are also changes to the “standard” deduction and child tax credit amounts. A large percentage of employees will need to redo their IRS Form W-4 this year to ensure they are paying the appropriate amount.

Why Use the Calculator?

Both the new IRS Form W-4 and the updated online calculator provided by the IRS have been designed to implement those changes made under the Tax Cuts and Jobs Act. This act effectively increased the standard deduction while at the same time curtailed personal exemptions, bumped up the child tax credits, changed many tax rates, and either cut certain deductions or reduced them significantly. Even those who have been working in the income tax field for years are having to go back to school to better understand the changes made.

Many tax experts believe that everyone should use the calculator to check their current payroll deductions. But, at the same time, if an individual has a particularly complex tax situation, such as having just got married, sporting multiple incomes, possessing a significant amount of itemized deductions, or having several children, he or she needs to go over the new IRS Individual Withholding Tables released in January and use the online calculator to ensure he or she doesn’t end up with a nasty shock come April 15, 2019.

Not for 2017

One thing the IRS says it cannot state enough, is that the updated online calculator is “NOT” to be used to calculate 2017 taxes. By making use of the calculator, an individual can save the time and effort required to fill out the worksheets that come with the IRS Form W-4. On top of this, the IRS online calculator does not require one to enter any personal or identifying information in order to use it.

According to acting IRS Commissioner David Kautter, “Withholding issues can be complicated, and the calculator is designed to help employees make changes based on their financial situation. Taking a few minutes can help taxpayers ensure they don’t have too little — or too much — withheld from their paycheck.”

The last thing the average employee wants is to not have enough in taxes taken out of his or her paycheck. When this happens, they have a very good chance of owing money when the time comes to file their taxes. Chances are good that those who don’t take the time to go over their taxes now will soon find themselves wishing they had.

Easy to Use

Unlike so many other aspects of the IRS system, the online calculator is relatively easy to use. One never has to enter identifying information such as a social security number or even a name. What’s more, none of the data entered is stored in the IRS database.

To use the calculator, an individual only needs to enter the following information:

  • Filing status – single, married filing jointly/singly, head of household, qualifying widow.
  • Dependency status – can anyone claim the individual as a dependent on their tax return.
  • Employment information – number of jobs, etc.
  • Child and dependent care credits – number of qualifying children etc.
  • Income and withholding – how much the individual has made, how much he or she paid in taxes.
  • Deductions – enter the various deductions listed or claim the standard deduction

That’s it, nothing could be easier. If the individual has the correct income and deduction information at hand, he can complete the entire process in under 20 minutes. At the click of a button, he can have the information needed to see if he is paying enough, too much, or too little in taxes, so he can adjust the amount he has deducted from his paychecks.

Tips to Help Individuals Use the 2018 IRS Online Withholding Calculator

Before one gets online and jumps into trying to use the IRS online calculator, he needs to take a little time to prepare. This will make it much easier for the individual to complete the process accurately and in a timely fashion.  Consider these tips:

  • Paystubs – These are needed to show income and the amount of federal taxes withheld.
  • Last year’s taxes – The individual should have a copy of his 2017 tax return on hand. He may be able to use some of the information on it to help him estimate income etc.
  • Accuracy – Bear in mind the results an individual gets from the calculator are only as accurate as the information entered.
  • No personal information – The IRS does not collect any personal information or store anything an individual enters.
  • Taking the time – This can help ensure individuals don’t have too much or too little withheld from their paycheck. Use the information from the calculator to decide whether or not to fill out a new IRS W-4.
  • The rules haven’t changed – As always, the fewer deductions claimed, the higher the withholdings will be.
  • Too many deductions – It is possible to claim too many deductions and end up getting a tiny refund or even end up owing taxes.

For those who had to fill out a new W-4 form, it is important that they turn it into their employer as soon as possible. Waiting as little as a few extra weeks could easily result in an individual owing hundreds, if not thousands, of dollars in unpaid taxes or in paying far more than they should all year long. Log onto the calculator, and get this done today. It only takes a few minutes to complete but can save an individual thousands.

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By |2018-03-22T17:43:00+00:00March 22nd, 2018|Blog|0 Comments

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