It’s a new tax year with a new tax law. Before you rush to revise your tax withholding, find out what the tax experts say. Joshua Zimmelman, owner of Westwood Tax and Consulting in New York, provides excellent advice regarding the impact of the new tax laws on your withholding:
If it’s been a while since you started a new job, you might have forgotten about Form W-4, the paperwork that specifies the number of withholding allowances you claim on your paycheck. Those withholding allowances determine how much of each paycheck gets sent to Uncle Sam to cover your eventual federal income tax bill.
For many people, the only time they complete a W-4 is when they change jobs. However, you can adjust your withholding allowances at any time by submitting a new W-4 to your employer, and it’s a good idea to do say whenever there’s a change in your tax situation. For instance, say your spouse stops working to be a stay-at-home parent. The decrease in your family income will affect your taxes, and you’d probably want to adjust your W-4 to reflect the new situation. Otherwise, you might have too much money withheld from your pay.
Withholding changes in 2018
A major change in the tax code – and the new tax law certainly is that – is another time when your withholding might need to change. In 2017, your withholding was typically based on what allowances you qualify for and whether you’re filing as married or single. The new tax law changes many of the calculations that were baked into the 2017 withholding rates.
Foremost among these are changes in the seven tax brackets (most have been lowered) and the doubling of the child tax credit, both of which will decrease taxes for many taxpayers, and the elimination of personal and dependent exemptions, which have the effect of raising taxable income. Meanwhile, an increased standard deduction (which has nearly doubled) may cause many taxpayers to stop itemizing deductions, another change that could affect withholding.
No need to adjust your W-4… yet
Employers must now figure out the necessary adjustments for withholding under the new tax code, but taxpayers do not need to do much. The IRS has issued new withholding tables for employers and payroll administrators to use, and they’ll have until February 15, 2018 to comply with the new guidelines.
According to the U.S. Treasury, employees do not need to fill out new W-4 forms to take advantage of the tax law changes. The new guidelines are designed to work with W-4s already on file. The IRS is expected to have a new W-4 form ready for 2019.
The goal is to find a happy medium – a tax refund or balance due that’s not too big – by withholding what makes sense for you. And any time there’s a major left event that affects your filing status, income, deductions, credits, or withholding allowances, submit a new W-4 to your employer to make sure your withholding accurately reflects your new financial situation. But absent such changes, for now you don’t have to do a thing.