Although touted to simplify income taxes, the Tax Cuts and Jobs Act of 2017, like most tax bills before it, has created confusion and made many aspects of our US tax system more complicated. This caused many taxpayers to experience unexpected results when completing their 2018 Individual Income Tax Returns.
To help many taxpayers avoid surprises again with the filing of their 2019 tax returns and beyond, the IRS has launched a free “paycheck checkup” tool called the “Tax Withholding Estimator”. Designed primarily for wage earners, this online calculator will evaluate information you provide, to determine adjustments that may need to be made to your Form W-4, Employee’s Withholding Allowance Certificate, for the balance of this year in order to avoid any big surprises. It does not ask for any sensitive personal information and the information you do have to provide is not stored in any manner by the IRS.
Armed with the most recent payroll check stub from all current year employers, along with your 2018 tax return, the tool will provide guidance to complete a new Form W-4 to be submitted to your employer. It works for all filing status taxpayers and is able to handle taxpayers who work more than one job. Keep in mind, the results of this tool are only as accurate as the information you provide.
Beware, if you have income sources other than wages, this tool may not be for you. The more involved your tax life, the less accurate this tool becomes. It specifically is not designed for taxpayers with long-term capital gains/losses or taxpayers that are subject to Alternative Minimum Tax or are required to pay quarterly tax estimates.
This free tool can be used as often as you would like. In fact, the IRS urges you to use it more than once throughout the year for best end of year results. You can navigate to the Tax Withholding Estimator from the IRS.gov website, but the direct link is https://apps.irs.gov/app/tax-withholding-estimator.
As you complete the process of filling in the tool, it will provide you with a link to open a W-4 fill-in form on screen. It can be completed, printed and signed and then submitted to your employer(s) at any time during the year.
Another word of warning… If you decrease your withholdings any time during this year, you need to be sure and use this tool again at the beginning of next year to adjust to proper withholdings for the new year.
The exercise of checking your current year tax withholding status and planning for year end is wise and can greatly reduce the chances of painful surprises when it is time to file your annual income tax returns. If your tax life is more complicated than the IRS Tax Withholding Estimator will accurately handle, you may benefit from seeking the assistance of a CPA or other tax professional during the year. Unlike the free IRS tool above, the services of these professionals will involve fees, but you should gain the peace of mind of knowing you are maximizing your current net take home pay while positioning yourself for little to no tax due with your end of year income tax returns.