New Tax Bill
This time a year ago, I was writing about taxes and said: “We’ll see if legislation gets passed to simplify the tax filing process in the future.” You have now likely heard that a new tax bill was passed (which may or may not have simplified things), effective January 1, 2018. If you want a detailed summary, here’s a super long article all about it.
For most of you, I’m guessing this isn’t that interesting. Additionally, I’m not a Certified Public Accountant and am not here to give anyone specific tax advice.
Updating Tax Form W-4
That said and from what I’ve read, my typical readers will not experience a drastic change in their tax liability for 2018, but if you want the most accurate amount of federal taxes withheld from your paycheck it’s a good idea to update your W-4.
According to the IRS website, “The purpose of Tax Form W-4 is simple ― it is used by your employer to withhold the proper amount of federal income tax from your paycheck. The IRS recommends that employees submit a new W-4 tax form each year, or any time their personal or financial situation changes.”
To help you know how to adjust your W-4, the IRS has issued a 2018 Withholding Calculator. You can use the calculator to determine if any adjustments are needed and how far off you may be given your current withholdings. If you want to make a change, you would then work with your employer to complete and submit an updated W-4.
Here’s an example of what your results from the calculator may look like:
- Based on the information you previously entered, your anticipated income tax for 2018 is $7,825. If you do not change your current withholding arrangement, you will have $6,000 withheld for 2018 leaving $1,825 due when you file your return. You should adjust your withholding on a new Form W-4 as follows:
- For the only job you entered: 1 allowance
- Check the “Single” box on your Form W-4
- Based on the information you entered, if you file a new Form W-4 for the rest of 2018 the expected refund to which you may be entitled, should be about $225. Following this recommendation to file a new W-4 will ensure that the amount withheld from your wages will cover all of your projected tax liability while minimizing your refund, as long as the information you entered in the calculator remains correct.
Don’t Forget to File for 2017
As a reminder, these changes will impact the 2018 tax year. Don’t forget, however, to file your 2017 taxes by Tuesday, April 17, 2018.