The IRS has issued new withholding tables to reflect the lower tax rates for the next few years. New tables were issued on January 15th, 2018, and employers were required to start using them by February 15th of this year.
By this time, taxpayers should have noticed a decrease in their Federal Income Tax withholding — even without changing the W-4. Whether this is the right amount of withholding remains to be seen, so it is important to be proactive. The IRS has an online calculator that can be used by you to review your withholding.
A current pay statement, and perhaps, your 2017 tax return may help to answer the questions you will have to answer; however, the online calculator is very thorough and user-friendly, providing explanations of what certain terms mean. Upon submitting the numbers into the questionnaire, you’ll be able to determine whether or not the withholding amount is on target.
It is most critical to think through and consult a professional on any suggested withholding allowance before taking action.
I have tested it and found it to be a helpful tool that will provide you with an estimated Federal Tax liability for the year. The results section explained how I could more closely match my anticipated tax liability with the correct tax withholding and provided details about how to go about doing so.
This tool, while it can be helpful, should not be a substitute for good, sound financial advice.
Lastly, given the recent changes, it is also important to note that students who make $12,000 or less and are claimed by their parents should mark their W-4s as exempt to keep from having any withholding. Doing so will ensure access to money earlier in the year and preclude them from the time and expense of filing a return.
Contact me with questions or comments.
Susan A. Moussi, CPA, CFP®, CDFA SMD Tax & Divorce Financial Planning Consultants, Inc. Phone: 614.429.4172 firstname.lastname@example.org