The recent tax season is behind us unless the taxpayer decided to file an extension. With a year under our belt with the new tax laws, it is now a perfect time to reevaluate the number of withholdings used and make any changes with employers as soon as possible. This will sidestep tax season surprises (good or bad), or it can ensure that the taxpayer gets a bigger refund next year.
When evaluating withholdings from last year, be mindful of those that were in effect for the entire year and those that were implemented mid- to late-2018.
What to look for when doing a paycheck checkup
The IRS recommends doing a paycheck checkup after each tax season. Changes because of the new tax laws is the obvious reason for switching things up, but other withholdings to reevaluate include taxpayers who:
Have older dependents, including those over 17 years of age
Have children and claim credits like Child Tax Credit
Have claimed itemized deductions in the past
Families with both spouses working
Taxpayers with more than one job
Taxpayers who work seasonally
Those in the upper-income bracket or have complex returns
Those with non-wage income like dividends, capital gains or unearned income
Changing the withholdings
It is best to punch in the information to a Withholdings Calculator. This tool from the IRS will help to identify any changes that need to be done based on switches in circumstance, law or income. Based on the results, it may be necessary to fill out a new W-4 and submit it to your employer. Those who do not pay through withholdings (such as the self-employed) may consider paying an estimated amount quarterly.
Those with questions regarding withholdings should speak with a tax attorney who can explain how the laws apply to the individual taxpayer and help build a defense if there is a dispute over the amount owed.