Taxpayers Should Review Paychecks, W-4s Amid Release of New IRS Withholding Tables
February 5, 2018 – NJCPA
ROSELAND, N.J. — The New Jersey Society of CPAs (NJCPA) is reminding taxpayers to review their paychecks due to the Internal Revenue Service (IRS) updating the income-tax withholding tables for 2018. Employers have until February 15 to use the new withholding tables, but taxpayers could start to see a change in their pay stubs at an earlier date if employers incorporated the changes sooner.
Reflecting a reduction in individual tax rates and increased standard deductions stemming from the Tax Cuts and Jobs Act signed in December, the change in the new IRS withholding tables could amount to more take-home pay for taxpayers, but some could be in for a surprise when filing their 2018 tax return if they are claiming excess allowances on their Form W-4 based on prior year deduction amounts. Those who may be at risk for being under-withheld include those who had large itemized deductions in 2017, those who receive compensation for commissions and bonuses, and those who pay large state and local taxes. According to the IRS, requesting additional tax be withheld on their W-4 can be “a good option for taxpayers who participate in a sharing economy activity as a side job or part-time business.”
Determining the right amount of withholding has always been somewhat of a challenge. The IRS expects to have a withholding calculator with the 2018 changes to assist taxpayers but it is not operational yet. The IRS and the Department of the Treasury designed the 2018 withholding tables to work with the W-4 that employees have already provided their employers. The IRS will eventually have a new W-4 for 2018.
Below is a sample breakdown comparing the old and new withholding tables for a few sample taxpayers, barring other circumstances.
“Changes like these can go unnoticed if taxpayers don’t stay on top of them,” said Ralph Albert Thomas, CEO and executive director at NJCPA. “CPAs can work with a taxpayer to determine the right amount of withholding for their situation.”
This article is a news release from the NJCPA. You may visit the NJCPA website at https://njcpa.org.
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