The IRS has released a new withholding calculator, as well as a new version of Form W-4, Employee’s Withholding Allowance Certificate. The new withholding calculator will let employees check that their income tax withholding is proper following passage of the Tax Cuts and Jobs Act ( P.L. 115-95)
The Tax Cuts Act made major tax law changes that affect employees, such as modifying income tax rates and brackets, increasing the standard deduction, removing personal exemptions, increasing the child tax credit, and limiting or discontinuing certain deductions. The withholding calculator provides employees with the information they need to fill out a new Form W-4, which they can submit to their employers to adjust withholding on their wages. Taxpayers can use the calculator results to determine if they need to file a new Form W-4.
A withholding checkup can help prevent employees from having too little or too much income tax withheld. Taxpayers who should conduct a withholding checkup include:
- two-income families;
- individuals with two or more jobs at the same time or who only work for part of the year;
- individuals with children who claim credits such as the Child Tax Credit;
- individuals who itemized deductions in 2017; and
- individuals with high incomes and more complex tax returns.
The new withholding calculator is not meant to be used by taxpayers with more complex situations, such as those who owe self-employment tax, the alternative minimum tax, or tax on unearned income from dependents, as well as taxpayers with capital gains or dividends. These taxpayers may need to wait until the IRS updates Publication 505, Tax Withholding and Estimated Tax, which is expected to be released during Spring 2018.