Are you needing to use the new withholding calculator to determine how you should claim for tax purposes on your W4 form? In the last blog, I discussed that the recent tax reform brought about a change in the withholding schedule and a new W4 form has been issued. If you missed the post, you can read it here: https://affordablebookkeepingandpayroll.com/need-update-w4-form/
For those who have a simple tax return, there may not be any change needed in order to have proper tax amounts withheld. But if you have a more complicated return because of self-employment tax, unearned income, or even capital gains or dividends, you may need to use the withholding calculator. The IRS has provided some tips to help you use this feature:
- Gather your most recent pay stub from work. Check to make sure it reflects the amount of Federal income tax that you have had withheld so far in 2018.
- Have a completed copy of your 2017 (or possibly 2016) tax return handy. Information on that return can help you estimate income and other items for 2018. However, note that the new tax law made significant changes to itemized deductions.
- Keep in mind the Withholding Calculator results are only as accurate as the information entered. If your circumstances change during the year, come back to the calculator to make sure your withholding is still correct.
- 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, watch out for tax scams, especially via email or phone calls and be especially alert to cybercriminals impersonating the IRS. The IRS does not send emails related to the calculator or the information entered.
- Use the results from the Withholding Calculator to determine if you should complete a new Form W-4 and, if so, what information to put on a new Form W-4. There is no need to complete the worksheets that accompany Form W-4 if the calculator is used.
- As a general rule, the fewer withholding allowances you enter on the Form W-4 the higher your 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.
- If you complete a new Form W-4, you should submit it to your employer as soon as possible. With withholding occurring throughout the year, it’s better to take this step early on.
It’s expected that more changes will come in 2019, so be prepared to review the information again next year. In the meantime, if you are unsure how this change affects your taxes, be sure to talk with your CPA to make sure you are claiming the right number of deductions.
