The passage of the Tax Cuts and Jobs Act in late December 2017 left the IRS with little time to plan for and implement appropriate wage withholding tables for 2018. That job has now been accomplished and the new tables are being implemented by employers across the country.
The downside of income tax withholding is that it is legally mandated and another thing for us to worry about. The upside is that it is manageable by the employee so that his/her actual prepayments can be fine-tuned to an optimal amount. You don’t want to over-withhold just to get a large refund when you file your tax return; similarly you do not want to under-withhold and risk being socked with underpayment penalties, not to mention a big balance due in April. Income tax withholdings can and should be integrated with quarterly estimated tax payments to ensure that you pay at least the minimum quarterly required amounts throughout the year.
To help you with this in a real-time manner, the IRS has released its 2018 Withholding Calculator. The Withholding Calculator will ask you to estimate the values of your 2018 income, the number of children you will claim for the Child Tax Credit and Earned Income Credit, and other items that will affect your 2018 taxes. For those with relatively simple tax situations, the process should take only a few minutes. Those with more complex situations should contact their Withum tax advisors as soon as possible to discuss preparing a more comprehensive tax projection and payment schedule.
You can access the Calculator by clicking on the hyperlink included in this article. Be sure to have the following information in front of you before you start:
Remember the GIGO principle – “garbage in, garbage out.” Using bad data or kidding yourself about certain numbers will only hurt you in the end. Importantly, the Calculator does not ask you any sensitive personally-identifiable information like your name, Social Security number, address or bank account numbers, nor does the IRS save or record the information entered. So don’t be afraid of “tipping your hand” – it’s not that kind of calculator!
If you are an employee, the Calculator will help you determine whether or not you need to provide your employer with a new Form W-4, Employee’s Withholding Allowance Certificate.
A caveat – this Calculator is not the “be-all, end-all” in tax estimation and withholding software. We like to think that it will help to steer you onto the right track, but it is, after all, only an estimator and you may still find at year’s end that you end up being over or under-withheld. It is not a bad idea to recalculate your tax a couple of times during the year and adjust your withholdings, if necessary or perhaps make an estimated tax payment so that you do not find yourself with a surprise come next April. And, of course, if your tax situation is complex or changes substantially during the year, you should seek professional assistance. Such complexity includes changes in life situation, self-employment income and tax, the additional Medicare tax on wages and net investment income, the existence of significant other income such as interest, dividends, royalties, real estate or alternative investments, or capital gains, and large deductions for medical expenses and charitable contributions, among others.
With the calendar already in March, now is the time to test – and adjust – your 2018 income tax withholding. Withum is here to help. Contact your Withum tax advisor or fill out the form below and we’ll reach out to you.
Author: Raymond G. Russolillo, CPA/PFS | firstname.lastname@example.org