Last week, the IRS released the new withholding tax calculator and Form W-4, reflecting changes included in the Tax Cuts and Jobs Act passed in December. The IRS released new withholding tables in January, designed to adjust withholding for employees with simple tax situations. The new calculator and Form W-4 were designed to help employees with more complicated tax situations ensure their tax withholding is correct.
Employees with complicated tax situations are highly encouraged to check their withholding, as the new withholding tables alone may not provide enough change to ensure their tax withholding is correct. Among these groups are:
People with two or more jobs at the same time or who only work for part of the year.
People with children who claim credits such as the Child Tax Credit.
People who itemized deductions in 2017.
People with high incomes and more complex tax returns.
The new withholding tax calculator has employees fill in information about their annual income, taxes withheld year to date, and credits they anticipate claiming. It then calculates if the current withholding amount is sufficient or if a change needs to be made to their W-4. If a change needs to be made, it provides detailed instructions on how to complete the new W-4. Employees should have their last pay stub and last completed tax return handy to help estimate the amounts needed in the calculator.
The new Form W-4 includes an extended worksheet for calculating an employee's withholding status, similar to the online withholding calculator. If employees use the online calculator, they do not need to complete the worksheet on Form W-4. Employees who need to change their withholding should complete the Withholding Allowance Certificate at the bottom of page 1 and return to their employer as soon as possible.
Employers should encourage all employees to review their withholding to ensure they are on track to have the correct amount withheld for 2018. It is important for employees to be proactive in calculating their withholding as they can be penalized if they have too little or too much tax withheld throughout the year.