In late 2017, the United States made major changes to its tax system, meaning many Americans have seen changes in how much they pay in taxes than in previous years. 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 were intended to help make tax withholdings more accurate, but many taxpayers have questions.
How Have Tax Withholdings Changed?
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 payroll withholding table adjustments, you may seen a change to your tax withholdings starting as early as February 2018. The U.S. Treasury reported 90% of taxpayers realized smaller withholdings. While more money in your pocket is good news, there were serious questions about the accuracy of the IRS income tax withholding, and workers were warned adjustments would be needed. Some continue to try to find the sweet spot of having enough, but not too much withheld for taxes.
Should I Adjust My Withholdings?
If you depended on itemized deductions or significant allowances for dependents, you may have already reexamined your withholdings to avoid under-withholding and a big tax bill. You may have also found that 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, you can 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.
*Updated July 2020