Federal income tax withholding may need adjustment

The Tax Cuts and Jobs Act changed the way taxable income is calculated and reduced the tax rates on that income. The IRS had to address and make changes to income tax withholding in response to the new law as soon as possible after it passed. This issue affects every taxpayer who receives a paycheck. The U.S. tax system operates on a pay-as-you-go basis. Taxpayers must generally pay at least 90 percent of their taxes throughout the year through withholding, estimated or additional tax payments or a combination of the two. THIS MEANS THAT…you need to pay most of your tax during the year, as the income is earned or received. If you don’t, you may owe an estimated tax penalty when you file
For employees, income tax withholding is the amount of federal income tax withheld from your paycheck. The amount of income tax your employer withholds from your regular pay depends on two things: „ The amount you earn. „ The information you give your employer on Form W–4, Employee’s Withholding Allowance Certificate. The IRS issued new withholding tables for 2018 to reflect the changes in tax rates and tax brackets, the increased standard deduction and the suspension of personal exemptions, among other things. The IRS also reissued withholding tables, which show payroll service providers and employers how much tax to withhold from employee paychecks, taking into account each employee’s wages, marital status, and the number of withholding allowances they claim. The IRS also modified Form W-4, Employee’s Withholding Allowance Certificate, which is the IRS form that employees provide to their employers, so that the employer may determine the amount of federal income tax to withhold from the employees’ paychecks. The form helps employees adjust withholding based on their personal circumstances, such as whether they have children or a spouse who is also working. The IRS recommends employees check their withholding any time their personal or financial information changes. The Form W-4 relates to an employee’s federal income tax withholding. State income tax withholding is separate. THIS MEANS THAT…You should have started seeing withholding changes in your paycheck around the end of February 2018. The exact timing depends on when your employer made the change and how often you are paid. You still need to check your withholding and make sure it is correct so there is no surprise at tax filing time. Just as the amount of your withholding has changed based upon the change in tax rates, you may also need to adjust your withholding or make estimated or additional tax payments due to other changes in the tax law. You should review your withholding in 2018 and make adjustments if there is still time this year. Review your withholding again, early in 2019 to make sure you don’t have too little or too much withheld from your paychecks next year. To help with this, the IRS issued a new Withholding Calculator and updated Form W-4 to help you check and update your withholding with your employer, if necessary. You can use the Withholding Calculator to estimate your income tax. The Withholding Calculator compares that estimate to your current tax withholding and can help you decide if you need to change your withholding with your employer. The new withholding tables were designed to produce the right amount of withholding for people with simple tax situations. Some people have more complicated tax situations and face the possibility of not having enough income tax withheld by their employer. If not enough tax is withheld by your employer, you could have an unexpected tax bill and even a penalty when you file your return next year. More information on the withholding tables is available in the IRS Withholding Tables Frequently Asked Questions page