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IRS News: 2018_08

IRS tells taxpayers to do a “paycheck checkup”

After filing tax returns, many people put taxes far out of their mind. However, the IRS urges these taxpayers to visit the Withholding Calculator on IRS.gov and do a “paycheck checkup.” Doing so will help them make sure their employers are withholding the correct amount of taxes from their paychecks.

The Tax Cuts and Jobs Act was passed last year, and it included many tax law changes. Taxpayers who calculate their tax payments throughout the year in order to receive a refund at tax time should check to see how the new tax law affects them. A “paycheck checkup” can help taxpayers apply the new law changes to their situation.

Here are some of the changes that affect taxpayers who received a refund this year, but also many other people:

• The law reduced tax rates and changed tax brackets.
• The standard deduction nearly doubled. The new rules raise the standard deduction to $24,000 for joint filers and $12,000 for singles for 2018. Many taxpayers who previously itemized their deductions will find the standard deduction is now of bigger benefit.
• The law removed personal exemptions.
• The child tax credit is bigger and the phaseout amount is higher.
• The law added a new tax credit for dependents who can’t be claimed for the child tax credit.
• The law limited or discontinued certain deductions.

The calculator can help navigate each tax situation to make sure the amount withheld best fits the need of every taxpayer. It can help taxpayers decide if getting more money in each paycheck could make more financial sense than getting a refund at tax time next year. Adjusting withholding amounts now can also prevent having too little tax withheld, resulting in an unexpected tax bill next year.

Taxpayers with children, other dependents should check withholding ASAP

The new law made changes to the child tax credit and personal exemptions. Taxpayers should do a “paycheck checkup” to determine if the tax law changes could affect their tax situation this year. Here is an overview of the changes to the law that could affect the withholding of parents and caretakers:

Child tax credit
• The maximum child tax credit increased from $1,000 to $2,000 per qualifying child.
• Taxpayers whose income was too high to benefit from the Child Tax Credit in prior years may now find they qualify.
• The credit now phases out at $400,000 for couples and $200,000 for singles, compared with 2017 amounts of $110,000 for couples and $75,000 for singles.

Additional child tax credit
• The maximum additional child tax credit increased from $1,000 to $1,400.
• The ACTC is a refundable credit for taxpayers who owe little or no federal income tax.

Credit for other dependents
• There’s a new $500 credit that can benefit taxpayers who support other dependents.
• The taxpayer will claim the credit when filing a tax return.
• For purposes of this new credit, other dependents include qualifying children or qualifying relatives, such as a college student or an elderly parent.

Personal exemption
• The new law removes the personal exemption that taxpayers formerly claimed for themself, their spouse and dependents.

The Withholding Calculator allows taxpayers to enter their expected 2018 income, deductions, adjustments and credits – including the child tax credit. Users can click on definitions in the calculator for help in figuring out who qualifies for these expanded credits.

Here’s what taxpayers do when they have to file a new W-4

Taxpayers who do need to adjust their withholding should submit a new Form W-4, Employee’s Withholding Allowance Certificate to their employers. Taxpayers can use the updated Withholding Calculator on IRS.gov to do a quick “paycheck checkup” to check that they’re not having too little or too much tax withheld at work.

Among the groups who should check their withholding are:
• Two-income families
• People working two or more jobs or who only work for part of the year
• People with children who claim credits such as the child tax credit
• People with other dependents who can’t be claimed for the child tax credit, including children age 17 or older
• People who itemized deductions on their 2017 tax return
• People with high incomes and more complex tax returns
• People with large tax refunds or large tax bills for 2017

Here are a few things for taxpayers to remember about updating Form W-4:

• The Withholding Calculator will help determine if they should complete a new Form W-4.
• The calculator will help users determine the information to put on a new Form W-4.
• Taxpayers who use the calculator to check their withholding will save time because they don’t need to complete the Form W-4 worksheets. The calculator does the worksheet calculations.
• Taxpayers who complete new Form W-4s should submit it to their employers as soon as possible. With withholding occurring throughout the year, it’s better to take this step sooner, rather than later.

As a general rule, the fewer withholding allowances a taxpayer enters on Form W-4, the higher their tax withholding. Entering “0” or “1” on line 5 of the W-4 instructs an employer to withhold more tax. Entering a larger number means less tax withholding, resulting in a smaller tax refund or potentially a tax bill or penalty.

Employees who have too little withheld are not paying enough taxes throughout the year, and they may face an unexpected tax bill or penalty when they file next year. People who have too much tax withheld will get less money in their regular paycheck. If those taxpayers change their withholding and enter more allowances on Form W-4, they’ll get more money in their paychecks throughout the year.

Having a completed 2017 tax return and their most recent pay stub can help taxpayers work with the Withholding Calculator to determine their proper withholding for 2018 and avoid issues when they file next year.

For information about how to use the calculator and how to change withholding, taxpayers can check out the IRS Tax Reform Tax Tips on IRS.gov.
Taxpayers may also need to determine if they should make adjustments to their state or local withholding. They can contact their state’s department of revenue to learn more.

Pub 5303

More information:
Withholding Calculator Frequently Asked Questions
Tax Withholding
Tax Reform page on IRS.gov

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