The IRS is urging two-income families and folks who work multiple jobs to complete a paycheck checkup to verify that they’re withholding the right amount of tax from their paychecks.
You can check out the IRS Withholding Calculator to help navigate the complexities of multiple employer tax situations and determine the correct amount of tax for each employer to withhold.
The passage of the Tax Cuts and Jobs Act affects 2018 tax returns and makes checking withholding even more important. Some TCJA changes include:
- Increased standard deduction.
- Elimination of personal exemptions.
- Increased child tax credit.
- Limited or discontinued deductions.
- Changed tax rates and brackets.
Therefore, if you have a more complex tax profile — if you are a two-income family or if you work multiple jobs — you may be more vulnerable to being under-withheld or over-withheld following the tax law changes. This is why the IRS encourages a paycheck checkup as early as possible to help you see whether you’re having the correct amount withheld for your personal financial situation.
Adjusting your paycheck withholding early
If you need to adjust your paycheck withholding amount, doing so early gives more time for withholding to take place evenly throughout the year. Waiting means fewer pay periods to make tax changes and this could have a bigger effect on each paycheck.
The IRS Withholding Calculator is easy and accurate, says the IRS, allowing you to enter income from your multiple jobs or from two employed spouses and ensuring that you apply your 2018 tax deductions, adjustments and credits only once rather than multiple times with different employers.
Of course, the Withholding Calculator’s results depend on the accuracy of information entered and may not take your entire tax situation into account. Although it can be helpful, your best bet is to consult with a tax professional who’s familiar with your situation.
Know your W-4 form
Submit your new W-4 form to your employer as soon as possible, if necessary. In fact, you should submit to your employer a new W-4 with corrected withholding allowances within 10 days of the change. (Note that the IRS may be issuing a new W-4 form later this year, and it may be very different from the current one.)
As a general rule, the fewer withholding allowances an employee enters on a W-4 form, the higher the tax withholding. Entering 0 or 1 on line 5 of the W-4 means more tax withheld. Entering a larger number means less tax withheld, which would result in a smaller tax refund or potentially a tax bill or penalty. Again, a professional can help you make the right decision here.
You typically prepay your taxes during the year through withholding from a job or via estimated quarterly tax payments if self-employed — sometimes both. Not having enough taxes withheld can occur when you get married or divorced, have a baby or finally get that empty nest you dreamed about during your children’s teenage years. One of the most common under-withholding situations is the second-job scenario.
You may be doubling the exemptions, which would result in less tax withheld than required. To help you avoid the dreaded owe when you have two jobs, be sure to take into account second jobs and other special situations so there are no unpleasant surprises next April.
We’ve got your back
Determining accurate withholding can be tricky, so talking to a tax professional is always a good idea. If you’re interested in learning more about what you can and cannot withhold, or other ways to manage your taxes, contact KRS today for a complimentary initial consultation.