Bigger Paychecks in 2018?
by Mary E. McCraw, CFP®
With the last minute tax overhaul in December, many have been scrambling to incorporate the new laws into actual practice. Last month the IRS released a newly updated W-4, the form that directs employers on paycheck withholding. Many people have seen an increase in their take-home pay since February, but are unsure if they are actually withholding enough taxes under the new law.
Fears of owing a large amount next April have made some clients nervous about the increased paychecks. As of March 1, there is a way to verify that your withholdings are on track and you won’t have an unpleasant tax surprise in April.
Generally, you only need to revise your W-4 with your employer when you have major life changes. For example, one spouse going back to work, having a child or purchasing a home are all good times to review your withholdings. However, with the sweeping changes from the recent tax law, we recommend evaluating withholdings just to make sure you are on track for 2018. While most taxpayers will have a tax cut under the new law, there are some who will actually end up with a tax increase.
Along with the release of the 2018 Form W-4, the IRS also released an updated version of their online withholding calculator. For most taxpayers, the withholding calculator will be able to provide a detailed estimate of taxes for 2018 and suggest appropriate withholding amounts for the remainder of the year. However, some preparation is needed to ensure the best results. The IRS suggests gathering your most recent pay stub (for each job in household) and most recent tax return.
With this information at hand, you should be able to complete the calculator in 10 to 15 minutes. The calculator will provide specific information on how to fill out your new W-4; it is not necessary to complete the worksheets found on the form. We are happy to assist clients with the calculator – just contact us and provide the necessary information.
Even if you do not need to change your withholding, you can rest assured that the additional money in your paycheck will not lead to a big tax bill next year!