Recently, both the Internal Revenue Service (IRS) and California Franchise Tax Board (FTB) have issued news releases encouraging taxpayers to plan ahead and to withhold the correct amount of taxes from their paychecks in 2018 to account for recent changes in federal tax law.
During the last week of February, the IRS released a new version of Form W-4, Employee’s Withholding Allowance Certificate, which may be downloaded here. The IRS also announced the availability of an updated Withholding Calculator to help taxpayers ensure the accuracy of their tax withholding after the recent tax law changes. The Withholding Calculator can assist taxpayers in determining whether they should adjust their withholding to avoid a big tax bill and potential penalties when filing the tax year 2018 returns in early 2019. It can also prevent employees from having too much tax withheld. To effect any changes, employees should fill out the new version of the Form W-4 and present it to their employer.
The Tax Cuts and Jobs Act made changes to the tax law, including increasing the standard deduction, removing personal exemptions, increasing the child tax credit, limiting or discontinuing certain deductions, and changing the tax rates and brackets. Taxpayers might want to submit an updated W-4 to their employer, particularly if they are among those with more complicated financial situations such as:
- 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 complex situations, such as those who owe self-employment tax, the alternative minimum tax, or tax on unearned income from dependents, might need to use Publication 505, Tax Withholding and Estimated Tax, instead of the Withholding Calculator (the publication is expected to be available on the IRS website in early spring).
For any questions regarding these developments, please contact one of the authors or your usual counselor at AALRR.
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