IRS updates withholding calculator and Form W-4 for new tax law

The Internal Revenue Service released the updated withholding calculator and Form W-4 that it had promised for the new tax law to help taxpayers make sure they have the proper amount of taxes taken out of their paychecks.

The IRS is urging taxpayers to use both tools to check on their withholding.

“Following the major changes in the tax law, the IRS encourages employees to check their paychecks to help ensure they’re having the right amount of tax withheld for their personal situation,” said Acting IRS Commissioner David Kautter in a statement.

The Tax Cuts and Jobs Act made many changes in the tax code, including some trade-offs. It doubled the standard deduction but also removed personal exemptions. While it increased the child tax credit, it also limited or discontinued certain deductions and changing the tax rates and brackets.

The Withholding Calculator gives employees information for filling out a new Form W-4, the Employee’s Withholding Allowance Certificate. They can then submit a completed W-4 to their employer.

“Withholding issues can be complicated, and the calculator is designed to help employees make changes based on their personal financial situation,” Kautter said. “Taking a few minutes can help taxpayers ensure they don’t have too little—or too much—withheld from their paycheck.”

The withholding changes don’t affect the 2017 tax returns that are due this April. However, having a completed 2017 tax return can help taxpayers work with the Withholding Calculator to decide on their proper withholding for this year and avoid issues when they file their 2018 taxes next year.

The IRS is encouraging employees to use the Withholding Calculator to do a quick “paycheck checkup.” An employee checking their withholding can help protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time in 2019. It can also prevent employees from having too much tax withheld; with the average refund topping $2,800, some taxpayers might prefer to have less tax withheld up front and receive more in their paychecks.

The Withholding Calculator can be used by taxpayers who want to update their withholding in response to the new law or who start a new job or have other changes in their personal circumstances in 2018.

In January, the IRS released new withholding tables to help figure the correct amount of tax withholding and avoid under- and over-withholding of tax for taxpayers with simple tax situations. People with simple situations might not need to make any changes, including singles and married couples who have only one job, who have no dependents, and who have not claimed itemized deductions, adjustments to income or tax credits.

People with more complicated financial situations may need to revise their Form W-4, the IRS noted. Because of all the new tax law changes, it’s especially important for certain types of taxpayers to use the Withholding Calculator on IRS.gov to ensure they have the right withholding taken out of their paychecks.

Among those who should check their withholding are:

• 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.

Taxpayers with more complicated situations can use Publication 505, Tax Withholding and Estimated Tax, which the IRS anticipates will be available on IRS.gov in early spring, instead of the Withholding Calculator. That includes those who owe self-employment tax, the alternative minimum tax, or tax on unearned income from dependents, and people who have capital gains and dividends.

The Withholding Calculator asks taxpayers to estimate their 2018 income, along with other items that could have an impact on their taxes, including the number of children claimed for the Child Tax Credit, Earned Income Tax Credit and other items.