Many Americans are still not aware as to how last year’s reformed tax legislation affects them. An even larger number haven’t realized that Congress’ tax reform will change the brackets for income taxes as a result. That’s why the IRS is encouraging employees to perform a ‘Paycheck Checkup’ by using the Tax Withholding Calculator. It’s available on irs.gov to check whether the right amount of money is being withheld from their salaries.
It may sound like an unlikely scenario but it’s probable that your employer is withholding too little or too much money from your salary as income tax. Neither of these situations is ideal. It may seem like a good deal if your employer is leaving behind more of your salary.
However, you’re still not paying your full income tax. If your tax withholding is lower than the tax rate that applies to you, you might be in for a surprise. The IRS might send you a tax bill or impose a penalty at the start of the next tax year. In some cases, it’s possible that receiving more money in your paycheck will result in a smaller tax return at the time that they file their taxes next year.
The withholding calculator will help many taxpayers update their withholding status. You need to update your status in certain situations. These include law changes, or a difference in your job situation, for instance, if you get a new job. Using the calculator for long stretches of time can be intimidating. However, there is a good chance you don’t have to bear this hassle. The withholding guidelines for personal and simple tax situations are clear.
At the beginning of the year, the IRS released a set of tables that indicated the right amount of income tax that was an obligation to give. This applies to people who are in a particularly simple tax situation. This will help in preventing the instances of over and under-withholding of tax for people who are single, married with just one job, don’t have dependents, and haven’t claimed adjustments to tax or income credits, or itemized deductions.
However, if you face a complicated tax situation that doesn’t fall into the above-mentioned categories, you’ll have to use the Tax Withholding Calculator. After checking your obligations, there may be a chance that you’ll have to revise your W-4 form. People who traditionally fall into this category include families with more than one source of income and people who have more than one job. The list also consists of people who have claimed child tax credits or other types of credits.
Taxpayers who are in highly complex situations will need to refer to Publication 505, which is a Tax Withholding and Estimated Tax application to perform their Paycheck Checkup. This is only for people who owe the government self-employment tax, or the alternative minimum tax deduction. Whether you’ll be referring to the tables, Publication 505, or the Tax Withholding Calculator, it’s crucial that you perform a paycheck checkup to determine the right amount that you owe the government.
What You Need to Perform is a Paycheck Checkup
Doing taxes is already exhausting but the IRS is expecting taxpayers to do a paycheck checkup as well, so they can make sure that they’re not over or underpaying the amount of their tax withholding. Hence, you should make sure to complete your paycheck checkup and submit a new W-4 form as soon as possible. To do this, you’ll need certain things at hand, so you can enter them in the right fields.
For starters, collect your most recent pay slip form work and check the last federal income tax deduction made from your paycheck. You’ll have to see whether it matches the amount that has been withheld ever since the start of 2018. Have a proper copy of last year’s tax return at hand because it holds information that can come in handy for estimating deductions in income and other areas. But one should still remember that the new tax laws have made prominent changes to the rules of itemized deductions.
Please remember that even though the withholding calculator gives correct results, your own results will only be accurate if you enter proper information. If at any time during the year, your personal or financial circumstances change, make sure to check back with the calculator to see whether your withholding obligations are correct.
The calculated results, that are your new withholding obligations, will provide you with other details that you’ll need to fill out a new W-4 form, should there be a need to do so. Then, employees will have to submit the newly completed form to their employer.
Also, it matters to keep in mind that the new changes in tax laws did not affect your 2017 tax returns when you filed for them in early 2018. Rather, they are set to influence your tax returns of 2018, which you’ll be filing next year.
A Step by Step Walkthrough of the Tax Withholding Calculator
It may be confusing to head over the IRS’ Tax Withholding calculator right away before knowing what it’ll contain. Just to clarify, you’ll be punching in a lot of more numbers and details than in a regular calculator. So, prepare all the above-mentioned documentation that you require, beforehand. Now having the necessary information is crucial, because it helps you get over with the process much faster.
On the first page, you’re asked about which filing status you’ll select for upcoming tax return. You’ll have to select from a range of choices like single, married but filing separately/jointly, qualifying widow and head of the household. This is easy, so it won’t take long.
Page two features questions about different aspects of your personal and professional life. These can refer to the number of jobs you hold, and your spouse’s job situation as well. Next, there are a bunch of boxes you’ll have to tick depending on your contributions to retirement plans. Do note that this requirement is only for tax-deferred plans, such as a 401(K). Then, it’ll ask if you contribute to any pre-tax plan. If you don’t understand this, you can find hyperlinks that direct you to a page where you can understand the meaning of these terms.
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