In late 2017, the United States made major changes to its tax system, meaning many Americans will see changes in how much they pay in taxes. On January 11, 2018, the IRS (Internal Revenue Service) announced 2018 payroll withholding table updates, reflecting these changes. This and other steps planned by the IRS are intended to help make tax withholdings more accurate, but many taxpayers have questions.
How Will My Tax Withholdings Change?
Tax withholdings refer to the money kept back from your paycheck each payday to meet your tax obligation. They prevent you from having to pay all your tax bill in one large lump sum. It is important to get your tax withholdings correct. If you pay too little during the year, you will be saddled with a big tax bill in April. If you pay too much, you are getting less take-home pay than you deserve.
With the 2018 payroll withholding table adjustments, you may see a change to your tax withholdings starting in February 2018. The U.S. Treasury reports 90% of taxpayers can expect to see smaller withholdings. While more money in your pocket is good news, there are serious questions about the accuracy of the IRS income tax withholding, and workers are warned there may be an adjustment needed.
What Is the Problem?
Withholdings are measured based on IRS calculation tables and your Form W-4. It’s not a perfect system, but this method is relatively accurate. Due to the rush with the new tax bill, the IRS has not yet updated Form W-4, meaning one-half of the calculation may not be available in time for February paychecks.
In fact, the W-4 may not be ready during this tax year, so it may be some time before accurate estimates can be made about withholdings. In addition, the tax law has made changes to credits and deductions, and without a Form W-4, it will be challenging to factor how these new laws can impact withholdings.
Should I Adjust My Withholdings?
If you usually rely on itemized deductions or get significant allowances for dependents, you may wish to reexamine your withholdings to avoid under-withholding and a big tax bill. You may also find some employers take longer to make the needed changes. Your best option is to take a look at the W-4 and adjust your withholdings if needed.
If you usually work with a tax preparer or accountant, you may wish to contact them to ensure your withholdings are accurate. It may be best to wait for the first paycheck with the changes before contacting a professional. They can see how the tax laws affect your withholdings and make suggestions to you. After making changes to your payroll deductions, our take-home pay calculator can help you find out the impact it will have on your paycheck.
If you do not work with a tax adviser, the IRS will be publishing new information by the end of February. You can also use the free calculator below to help you decide whether to adjust your withholdings. At Money Help Center, we update our calculators with new IRS rules and news, so you get the latest information in an easy-to-understand format.