Still working? Check your tax withholdings
June 1, 2018
One great result of the Tax Cuts and Jobs Act is that most people see money in their paychecks, because less is being withheld. Our standard deductions have nearly doubled, and the tax rates have dipped. Those are good things. But the personal and dependent exemptions have been eliminated. For myself, I saw my paycheck jump $50 every two weeks. I get 26 paychecks a year, so that equates to an extra $1,300 without me lifting a finger. I love that, but because other changes in the new law will also have an effect, I wanted to make sure I was having enough withheld to cover my liability.
The IRS has always had a calculator that can estimate your tax bill, in time for you to adjust your withholding. I use it every year because I have some self-employment income that fluctuates. So, in July, when I’m half way through the year I use the calculator, which projects the full year, to see if I need to adjust my withholding up or down, if at all, while there’s time.
Now the IRS is emphasizing that everyone should take a moment to use the calculator, (link at end of story). It’s easy and doesn’t take long, but you’ll need a few things to fill it out accurately. Have a recent pay stub available and your last tax return so you can enter relevant information. If you expect your income and circumstances to change a great deal this year, you’ll have to adjust it. If the answer doesn’t seem right, you can start over and go through it again with extra care. I’ve done it many times but this year I went through it twice to make sure I had it right. Because my income varies somewhat, I do this every July. By then, I’ve received half a year of income and if I need to adjust my withholding, I still have half a year to smooth out the end results.
With the new lower withholding, the IRS encourages everyone to do a “paycheck checkup,” just in case. Remember, this is an estimate, not an exact figure. Find the withholding calculator at https://www.irs.gov/individuals/irs-withholding-calculator.