by Elizabeth Dentan, CPA
Based on a new report published by the Government Accountability Office, 30 million Americans are not currently withholding enough federal income tax from their paychecks, according to simulations run by the Treasury Department.
The Tax Cuts and Jobs Act of 2017 (TCJA) revised the tax code, including the elimination of the personal exemption, increasing the standard deduction and changing the tax brackets and rates. As a result, the IRS issued a new withholding table, effective February 2018. This table incorporated these TCJA changes and adjusted withholdings accordingly. Many taxpayers may have noticed an increase in their take home pay earlier this year.
The revised withholding tables are designed to work with the current form W-4 (Employee’s Withholding Allowance Certificate). These tables are designed for taxpayers with straightforward tax profiles, mainly taxpayers with W-2 wages who take the standard deduction. While many taxpayers will experience a decrease in their federal income tax obligation, our experience has shown that a number of taxpayers could end up paying more in tax and with a reduction in federal withholding, these taxpayers could owe tax when they file their 2018 return next spring.
The IRS lists several situations in which taxpayers may want to re-evaluate their situations and complete a new W-4. These situations include:
- Two income families
- Taxpayers with two or more jobs
- Taxpayers with children who claim credits such as the child tax credit
- Taxpayers who itemize or used to itemize
For those taxpayers who may need to update their W-4, the IRS, through its website https://apps.irs.gov/app/withholdingcalculator offers a withholding calculator which incorporates the tax changes made through the TCJA. To use the calculator, the IRS recommends having your most recent paystub with the year to date withholding on it, and your prior year tax return handy.
We recommend that if you need help determining your withholding or help determining whether you are required to pay estimated taxes, that you contact your tax advisor at Snyder Cohn as the new tax law may significantly impact the calculation of your tax liability.