Have You Done a Paycheck Check-up?
The IRS is advising taxpayers to perform a “paycheck checkup” to avoid any surprises when they file their 2018 tax returns. This is particularly important for taxpayers who owed additional tax when their 2017 tax returns were filed earlier this year. The IRS has several tools which can aid these taxpayers in determining whether or not they have adequate tax withholdings to cover their tax liability and avoid owing additional tax with their 2018 tax returns. These tools include the IRS Withholding Calculator and Publication 505.
Due to the passing of the Tax Cuts and Jobs Act in late 2017, many taxpayers could be affected by the changes in the tax law. By checking their current year tax withholdings now, taxpayers can determine if their withholdings are enough to cover their 2018 tax liability.
Here are some points to remember from IRS Tax Reform Tax Tip 2018-103:
- Taxpayers who did not have enough taxes withheld in 2017 had a balance due in 2018 when their 2017 tax returns were filed.
- It is likely that these taxpayers will be in the same situation next year if they do not adjust their withholdings as soon as possible.
- These taxpayers may find that their tax bill for their 2018 tax returns are more than their tax bill for their 2017 tax returns.
- Penalties and interest may apply to these taxpayers’ 2018 tax returns if their withholdings are too low and do not adequately cover enough of their tax liabilities.
- Taxpayers can use the IRS Withholding Calculator to assess their new tax situation and to determine whether or not they want to adjust their withholding for the year.
- Adjustments to their withholding should be made as soon as possible.
- Publication 505 may be a better option for taxpayers with more complex situations than the IRS Withholding Calculator. Examples of complex situations include taxpayers who owe self-employment tax, alternative minimum tax, etc.
Give us a call if you need help evaluating your tax withholdings.