In early 2018, the IRS released new payroll withholding tables to reflect changes from the Tax Cuts and Jobs Act. Payroll edits were made by employers and their payroll providers. As a result, the federal income tax withheld from your pay likely changed, even if your compensation remained the same and you did not proactively elect any change yourself. The exact timing of when the difference appeared in your paycheck could vary from one employer to another.
In general, one should review withholdings at the start of a new year and especially if personal circumstances change, such as a new job, marital status or having a child. This year it is even more important to do a “paycheck checkup” given the material changes to income tax law. Among the changes are new rates and brackets, an increased standard deduction, repeal of personal exemptions, and limitations or elimination of certain itemized deductions.
The IRS is strongly encouraging employees to check withholdings using the free Withholding Calculator to determine if a new W-4 should be submitted to their employers. The Form W-4 allows employees to adjust withholdings based on personal circumstances. This is especially important for households with multiple sources of employment income. The online Withholding Calculator does not require any sign up, user name or password. One generally needs all recent paystubs, an estimate of 2018 income, and a 2017 tax return to complete the calculator.
Your circumstances may be difficult to generalize, and co-workers or friends may not be reliable sources to determine the appropriate impact on your paycheck. It is possible you may be over-withheld and can get more money throughout the year from your pay instead of waiting for a refund at tax time. Alternatively, you may be under-withheld, and be at risk of an unexpected liability and penalties.
We recommend you check the IRS withholding calculator to help get a better idea of how much to withhold. You can adjust your withholding to more closely match the taxes you expect to owe. If you need assistance or anticipate material changes to your tax situation this year, please let your Heritage wealth management team know so we can help plan ahead.