With the new tax code for 2018, the IRS is strongly encouraging employees to perform a “Paycheck Checkup” to help ensure there are no unwelcome surprises at the end of the year in regards to their tax return.
While many folks have noticed an increase in their take home pay as a result of the tax cut, many of those same individuals may also be in for a big surprise at the end of the year when they go to file. This is primarily due to a change in items like child exemptions and other individual provisions that define what can be itemized and can be used to reduce your tax bill.
For example, those individuals who live in a state with an income tax used to be able to be able to itemize the full amount of that state income tax. The new Tax Act now caps the amount of state income tax that can be itemized at $10,000. This limit may increase the amount of taxable income for individuals in states like Virginia or Georgia, or particularly in states like New York or California where income tax rates are higher than the norm. So while an individual may see a reduction in their payroll taxes, at the end of the year, they may owe more income taxes due to a reduction in the amounts they can itemize.
To help individuals avoid an unpleasant surprise at the end of the year, the IRS has released a new tax withholding calculator to help them define their withholding taking into account the other provisions in the Tax Act.
(You can also find this calculator on Time & Pay’s Online Resources > Useful Payroll & HR Links.)
IRS officials recommend that two-earner couples and filers with large itemized deductions on Schedule A use this new calculator to help make sure they do not end up owing more at the end of the year than they were expecting. Experts also recommend that filers who claim more than 2 personal allowances in prior years check their withholding for 2018. The IRS notes that, as has always been their policy, there are penalties for income tax underpayments. However, indications are they may be considering some leniency for 2018 allowing tax payers to adjust to the new law.
The IRS estimates that 65% of tax filers will see a reduction in their income taxes due to this new law, while 6%, primarily top wage earners, will see an increase. The remaining wage earners will see no change.
If you find that you do need to make alterations to your W4, you can find and download one here!
About Time & Pay:
Time & Pay is a professional payroll service provider located in Johnson City, TN. We service businesses of all sizes and types throughout the United States. Founded in 1992, Time & Pay provides businesses with complete payroll services, guaranteed payroll tax compliance, automated time and attendance systems and services, pay-as-you-go workers comp, human resource management systems and services, ACA compliance and more. We provide our customers with the cost effective tools you need to better manage your payroll, your employees and your business. Time & Pay’s services guarantee you will save money, time and aggravation and we back them up with the customer service you expect and deserve. Contact Us today to learn why business owners throughout the country are saying:
“Time & Pay! Why would you do payroll and timekeeping any other way?”
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