By: Jason Schneider, CPA, Partner
Months after the Tax Cuts and Jobs Act (TCJA) was signed, the average tax payer is still trying to figure out what the legislation means for his or her bottom line. Headlines about slashed corporate income tax rates and certain unreimbursed business expense deductions have overshadowed the fact that one of the main components of the legislation was lower overall tax brackets for individual payers.
Indeed, you already may have noticed lower federal income tax deductions – and a corresponding increase in net pay – in your recent paychecks. TCJA has changed federal income tax rates and brackets, and therefore, new IRS withholding tables were put into effect in late January.
Overall, the TCJA has reduced federal income taxes for most people. But that’s not the full story. Depending on your specific tax situation, you might owe additional taxes when you file your 2018 income tax return – even if you normally receive a tax refund from the IRS.
For most W-2 employees, a portion of your income taxes are paid on each paycheck through withholding. With the new tax brackets taking effect in 2018, now would be a good time to consider updating your withholding allowances.
The IRS recently released the 2018 Form W-4, Employee’s Withholding Allowance Certificate, and related instructions, which you can find at www.irs.gov/W4. Adjusting your allowances now can help ensure that you pay enough taxes through withholding this year to avoid the dreaded income tax bill in April 2019.
To help you determine the correct number of withholdings, the IRS offers an online “W-4 Calculator,” online at www.irs.gov/individuals/irs-withholding-calculator. It’s important to adjust your withholdings periodically due to updates in pay rate, family status or other changes in your tax situation.
The IRS is not requiring all employees to file a new Form W-4 for 2018. For some, though, it may be advisable, since the TCJA introduced many other changes that could affect your 2018 income taxes.
For questions regarding your personal tax situation, give us a call, or visit www.IRS.gov.