Now that the tax filing deadline has come and gone it is time to start thinking about your taxes for 2018.
As nice as it is getting that big check from the IRS each year, all the financial experts say you should adjust your withholding so that you don't get a refund. When you do get a refund, you are basically giving the government an interest-free loan for the entire year.
Instead of getting $1,200 back at the end of the year, wouldn't it be better to have that extra $100 in your pocket each month? Wouldn't you be able to use the money better than Uncle Sam?
New Tax Law Brings Change
Recent changes to the tax law may make big differences in the amount of taxes you owe for 2018, This is especially true for
- Two-income families.
- 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.
Changes in the tax law include increasing the standard deduction, removing personal exemptions, increasing the child tax credit, limiting or discontinuing certain deductions and changing the tax rates and brackets.
Worse than getting a big refund is owing the IRS too much money at the end of the year. If this is true, you may end up having to pay the IRS a penalty for under-withholding.
The IRS is recommending that everyone use the new withholding calculator to make sure taxpayers have the proper amount withheld each paycheck and avoid a surprise next year at filing time.
Before Using The Calculator Get Your Paperwork together
The IRS offers these tips on using the new withholding calculator:
- Gather your most recent pay stub from work. Check to make sure it reflects the amount of Federal income tax that you have had withheld so far in 2018.
- Have a completed copy of your 2017 (or possibly 2016) tax return handy. Information on that return can help you estimate income and other items for 2018. However, note that the new tax law made significant changes to itemized deductions.
- Keep in mind the Withholding Calculator results are only as accurate as the information entered. If your circumstances change during the year, come back to the calculator to make sure your withholding is still correct.
- The Withholding Calculator does not request personally-identifiable information such as name, Social Security number, address or bank account numbers. The IRS does not save or record the information entered on the calculator. As always, watch out for tax scams, especially via email or phone calls and be especially alert to cybercriminals impersonating the IRS. The IRS does not send emails related to the calculator or the information entered.
- Use the results from the Withholding Calculator to determine if you should complete a new Form W-4 and, if so, what information to put on a new Form W-4. There is no need to complete the worksheets that accompany Form W-4 if the calculator is used.
- As a general rule, the fewer withholding allowances you enter on the Form W-4 the higher your tax withholding will be. Entering “0” or “1” on line 5 of the W-4 means more tax will be withheld. Entering a bigger number means less tax withholding, resulting in a smaller tax refund or potentially a tax bill or penalty.
- If you complete a new Form W-4, you should submit it to your employer as soon as possible. With withholding occurring throughout the year, it’s better to take this step early on.