The IRS issued new tax withholding tables for employers in January 2018, designed to reflect the new tax law passed in December 2017. By now, you’ve probably seen the results in a higher net paycheck. Seems like a pretty nice deal. But will you feel the same way next tax season?
The new tax withholding tables may not account for all of your income and deductions, which could result in under- or over-withholding income taxes compared to your tax liability. You could end up giving the government an interest-free loan — your refund. Or, you could end up having to pay a chunk of money when you file. You could even owe interest and penalties!
How can you avoid all of that? Compare your withholdings and any estimated tax payments to your projected tax liability. More easily said than done.
You have two options for verifying that your taxes are covered for next tax season:
- Do It Yourself (DIY)
Most people have all the information needed to figure out if their tax withholdings are enough to cover their tax liability. Pay stubs or online pay information reflect how much you earn and have withheld each pay period and year-to-date. Apply a little arithmetic to the pay information, and you can figure out your income and withholdings for the year. Have a completed copy of your most recent tax return handy. Information on that return can help you estimate income and other items for 2018.
It’s really important to know about the new tax law changes to estimate your 2018 income and deductions. To help with that, the IRS published a Withholding Calculator at https://www.irs.gov/payments/tax-withholding so taxpayers can make sure they have the right amount of withholding.
- Get Professional Help
No, not that kind of professional help. I mean help from a tax professional. The IRS Tax Calculator may be a great tool for taxpayers with simple situations. People with more complicated financial situations might need to meet with a tax preparer to get insight on how 2018 will differ from 2017 because of the new tax law. Sure, you’ll pay a fee for that service, but peace of mind is extremely valuable.
Avoid expensive surprises next tax season by figuring out now whether your tax withholdings will cover your 2018 income tax liability. Whether you Do It Yourself or get help from a tax professional, you’ll have peace of mind that your taxes are covered.