The recent tax law changes were geared to put more money in everyone’s paycheck. The result of that could be less money withheld. In April, the interest rate for under withholding went from 3% to 5%…an entire 2% increase! In addition to the penalty for underpayment, employees who under withhold are going to be paying a lot of money!
Who is affected? Here are a few: Two income families, people who have two or more jobs at the same time, people who claim credits (ex. child care tax), people who itemized in 2017, people who have dependents under the age of 17 in 2017, people with high income, people with complicated tax returns, and people who have a large tax bill or refund. This list would include most people paying taxes!
What to do about it? Go to the irs website and complete the withholding calculate to do your paycheck checkup then adjust your W-4 form accordingly. Here is the link: https://www.irs.gov/individuals/irs-withholding-calculator
What do you need? Be sure to grab your recent pay stubs and your most recent tax return. The calculate is only as good as the information you provide and does not necessarily provide a complete picture for those with self-employment tax, AMT, long term capital gains or qualified dividends, or tax on unearned income from dependents. Individuals in these situations should also refer to IRS Publication 505 as a reference. Here is the link: https://www.irs.gov/pub/irs-pdf/p505.pdf
Still confused? I don’t blame you! Be sure to contact your handy CPA if you have additional questions. Remember…you do not want to under withhold this year. Not paying the IRS their money is really going to cost you this year!
Jordan Ilderton, CPA