- July 16, 2018
- Posted by: admin
- Category: Tax, Tax Filing, Tax Responsibility
Do you need a “paycheck checkup”?
Since the Tax Cuts and Jobs Act became effective, the IRS has been urging taxpayers to determine the best amount to have withheld for their individual circumstances. Major changes to the tax law make a “checkup” a good idea. They include an increase in the standard deduction, the removal of personal exemptions, new tax rates and an increase in the child tax credit.
Checking your withholding can help protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time next year.
The Withholding Calculator works for most taxpayers, and helps you identify your tax withholding to make sure that you have the right amount of tax withheld from your paycheck at work. The Calculator will ask you to estimate values of your 2018 income, the number of children you will claim for the Child Tax Credit and Earned Income Tax Credit, and other items that will affect your 2018 taxes.
Here are few tips for operating this program:
- The Calculator’s results will only be as accurate as the information you provide.
- Gather your most recent pay stubs.
- Have your most recent income tax return handy. A copy of your completed Form 1040 will help you estimate your 2018 income and speed the process.
Publication 505 (2018), Tax Withholding and Estimated Tax
People with more complex tax situations should use the instructions in Publication 505, Tax Withholding and Estimated Tax. This includes people who owe self-employment tax, the alternative minimum tax, or tax on unearned income from dependents or certain other taxes, and people with long-term capital gains or qualified dividends. The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. There are two ways to pay as you go.
Withholding: If you are an employee, your employer probably withholds income tax from your pay. Also, tax may be withheld from certain other income, such as pensions, bonuses, commissions, and gambling winnings. The amount withheld is paid to the IRS in your name.
Estimated Tax: If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. People who are in business for themselves generally will have to pay their tax this way. You may have to pay estimated tax if you receive income such as dividends, interest, capital gains, rents, and royalties. Estimated tax is used to pay not only income tax, but also other taxes such as self-employment tax and alternative minimum tax.
This publication also explains how to take credit on your return for the tax that was withheld and for your estimated tax payments. If you did not pay enough tax during the year, either through withholding or by making estimated tax payments, you may have to pay a penalty.