Payroll Checkup: Workers Should Double Check Tax Withholding
The Tax Cuts and Jobs Act made changes to the tax law, including increasing the standard deduction, eliminating personal exemptions, increasing the child tax credit, limiting or discontinuing certain deductions and changing the tax rates and brackets.
May. 15, 2018
Americans who work seasonal jobs or are employed part of the year need to perform a “paycheck checkup.” This is even more important this year, with the recent changes to tax law, that will affect most U.S. workers’ tax obligations.
A good place to start is the online IRS Withholding Calculator.
The Tax Cuts and Jobs Act made changes to the tax law, including increasing the standard deduction, eliminating personal exemptions, increasing the child tax credit, limiting or discontinuing certain deductions and changing the tax rates and brackets. These changes do not affect 2017 tax returns due earlier this year, but they will affect 2018 tax returns filed next year.
Any changes that a part-year employee makes to their withholding can affect each paycheck in a larger way than employees who work year-round.
The Withholding Calculator, a special tool on IRS.gov, can help taxpayers with part-year employment estimate their income, credits, adjustments and deductions more accurately and check if they have the right amount of tax withheld for their financial situation.
The calculator asks about the dates of a taxpayer’s employment and accounts for a part-year employee’s shorter employment rather than assuming that their weekly tax withholding amount would be applied to a full year. The calculator makes recommendations for part-year employees accordingly. If a taxpayer has more than one part-year job, the Withholding Calculator can account for this as well. In contrast, the Form W-4 worksheets do not distinguish between part-year jobs and full-year jobs.
Using the Withholding Calculator
Taxpayers should have a completed 2017 tax return available when using the Withholding Calculator to help determine their proper withholding for 2018 and avoid issues when they file their returns in early 2019. Taxpayers also need their most recent paystub before using the Withholding Calculator.
Calculator results depend on the accuracy of information entered. If a taxpayer’s personal circumstances change during the year, they should return to the calculator to check whether their withholding should be adjusted. For taxpayers who work for only part of the year, it’s best to do a “paycheck checkup” early in their employment period so their tax withholding is most accurate from the start.
The Withholding Calculator does not request personally-identifiable information, such as name, Social Security number, address or bank account numbers. The IRS does not save or record the information entered on the calculator. As always, taxpayers should watch out for tax scams, especially via email or phone and be especially alert to cybercriminals impersonating the IRS. The IRS does not send emails related to the calculator or the information entered.
Adjusting Withholding
If the calculator results indicate a change in withholding amount, the employee should complete a new Form W-4 and should submit it to their employer as soon as possible. Employees with a change in personal circumstances that reduces the number of withholding allowances should submit a new Form W-4 with corrected withholding allowances to their employer within 10 days of the change.
As a general rule, the fewer withholding allowances an employee enters on the Form W-4, the higher their tax withholding will be. Entering “0” or “1” on line 5 of the W-4 means more tax will be withheld. Entering a bigger number means less tax withholding, resulting in a smaller tax refund or potentially a tax bill or penalty.
The IRS encourages taxpayers to review additional details about withholding by visiting IRS.gov.