In IR-2018-120, the Internal Revenue Service urged taxpayers to use the Withholding Calculator on www.IRS.gov for a “Paycheck Checkup” to make sure they have the right amount of tax taken out of their paychecks for their personal situation.
The passage of the Tax Cuts and Jobs Act (TCJA), brought many changes that will affect taxpayers. With the TCJA’s higher standard deductions ($12,000 for single taxpayers and $24,000 for married couples filing jointly), many taxpayers will have lower taxable incomes in 2018.
The IRS always recommends employees check their withholding at the beginning of each year or when their personal circumstances change to make sure they’re having the right amount of tax withheld from their paychecks. With the new tax law changes, it’s especially important for certain people to use the Withholding Calculator on IRS.gov to make sure they have the right amount of withholding.
Among the groups who should check their withholding are:
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 older dependents, including children age 17 or older.
People who itemized deductions in 2017.
People with high incomes and more complex tax returns.
People with large tax refunds or large tax bills for 2017.
The Withholding Calculator is an excellent way to estimate a taxpayer’s appropriate withholding amounts for 2018. If an individual needs to make an adjustment, it is best to do so early in the year rather than the end of the year. It would be difficult to make the change at a later date and have it reflect the correct amounts.
While many taxpayers will find their tax returns simplified due to the higher standard deductions, some taxpayers will still decide to itemize. Those who plan to itemize their deductions should consider four substantial tax law changes in 2018.
1. State and Local Taxes (SALT) – The SALT deduction is limited to $10,000 (not as big an issue in TN). Homeowners who live in states with substantial state income tax may have a property tax bill total over $10,000. In this case, your SALT deduction will be limited to $10,000.
2. Home Mortgage Interest – The deduction for interest on a personal residence mortgage is generally limited to $1 million (married filing jointly) or $500,000 (single) of debt for existing loans and $750,000 (MFJ) or $350,000 (S) of debt on new loans.
3. Miscellaneous Deductions – The TCJA repealed many deductions such as those for unreimbursed employee business expenses (office at home), investment expenses and tax preparation fees. Previously, most of these miscellaneous deductions were permitted if they were over 2% of adjusted gross income.
4. Charitable Deductions – Gifts of cash are now deductible up to a limit that is 60% of adjusted gross income (the limit was 50% in prior years). Many CPAs are encouraging clients who desire to reduce taxes to increase their charitable deductions in 2018.
The IRS notes the Withholding Calculator does not request “personally-identifiable information, such as your name, Social Security Number, address or bank account numbers.” When using the Withholding Calculator, an individual can estimate the proper amount of his or her 2018 withholding.
If you desire to change your withholding amounts, contact your employer and complete a new IRS Form W-4. Because the average 2017 tax year refund was $2,800, many individuals who plan to use the new higher standard deductions may choose to reduce withholding and increase monthly income.