New Federal Tax Law Changes – Time to Review Withholding Guidelines
Millions of American workers should start seeing bigger paychecks as early as mid-February. This is thanks to the Trump administration guidelines that were recently issued to help businesses implement the new tax law. While getting a bigger paycheck always feels like a good thing, taxpayers need to be aware of one potential pitfall: under-withholding of federal income taxes.
In order to meet the deadline on February 15, 2018 for implementing the new federal income tax withholding guidelines, employers must rely on now-obsolete withholding forms (form W-4) that were filled out by employees under the old tax law. Those forms were filled out with employees claiming a certain number of “allowances” to determine the federal withholding from their paychecks. Those allowances typically closely mimicked the number of exemptions that were claimed on the employees’ tax returns.
The new tax law repealed the personal exemption, and herein lies the problem. Critics allege a combination of the new withholding tables coupled with the outdated withholding forms will cause millions of Americans to substantially under-withhold their federal income tax for 2018. This means when they file their 2018 returns, many will owe potentially substantial amounts of money, rather than break even or get a refund.
The Treasury Department is in the process of developing a new withholding form for employers to provide to its employees, but it will be later in the year before it is finalized. So, what are employees left to do? Let the payroll programs and new withholding tables do their thing and hope for the best at tax time? While some may choose to take that approach, most of us would like to be a little more cautious.
Luckily taxpayers will have some help in this area, and it’s coming from an unlikely source: the Internal Revenue Service. Starting sometime next month, IRS officials have announced they will be providing an online calculator for taxpayers to use to help double-check the accuracy of paychecks and the federal income tax being withheld using the new tax tables. Personal information such as names and social security numbers will not be required. Instead, the calculator will use other details like income levels, family status and information related to deductions to calculate the projected required withholding.
While it may be tempting for taxpayers to enjoy the increase in take-home pay and ignore the possible adverse consequences of incorrect withholdings, it is advisable to take action sooner rather than later and be proactive in making sure there won’t be any nasty surprises at tax time.
If you have any questions regarding the changes to the tax code, hb&k is presenting two “Tax Talks”. On February 20, 2018, we will be in Foley from 12-1 at Wolf Bay Lodge and you can register by clicking here. On February 21, 2018, we will be in Daphne at Swift Supply and you can register by calling the Eastern Shore Chamber of Commerce at 251-928-6387.