IRS Tax Reform Tax Tip 2018-103, July 5, 2018
Taxpayers who owed additional tax when they filed their federal return earlier this year should do a “paycheck checkup” as soon as possible. The IRS Withholding Calculator and Publication 505, Tax Withholding and Estimated Tax, can help these taxpayers do a checkup and avoid another possibly bigger tax bill next year.
Following the Tax Cuts and Jobs Act, which was passed last year, there are many changes to the tax law that could affect these taxpayers. Doing a checkup now will help them make sure their current tax withholding is in line with their 2018 tax situation.
Here are some things for these taxpayers to keep in mind:
- These taxpayers may not have had enough taxes withheld from their pay throughout 2017, causing them to owe in 2018.
- If they continue to have too little withheld from their paychecks the rest of this year, they could find themselves in the same situation again next year.
- They might even end up with a larger tax bill when they file their 2018 return next year.
- It’s important to remember that if a taxpayer underpays their tax too much, penalties and interest can apply.
- The Withholding Calculator can help taxpayers apply the new law to their situation. The results from the calculator can help them make an informed decision about whether to change their withholding this year.
- These taxpayers need to adjust their withholding as soon as possible for an even withholding amount throughout the rest of the year.
- Waiting means there are fewer pay periods to withhold the necessary federal tax, which could have a bigger effect on each paycheck.
- Taxpayers with more complex situations might find that using Publication 505 is a better option for figuring their withholding than using the Withholding Calculator. Publication 505 works better for employees who owe self-employment tax, the alternative minimum tax, or tax on unearned income from dependents. It can also help those who receive non-wage income such as dividends, capital gains, rents and royalties.