The Internal Revenue Service today launched a special week-long campaign encouraging taxpayers to do a Paycheck Checkup now to make sure they are having the right amount of tax taken out of their paychecks for 2019.
The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, changed the way tax is calculated for most taxpayers. Most TCJA changes took effect in 2018. As a result, some taxpayers ended up receiving 2018 refunds that were larger or smaller than expected, while others unexpectedly owed additional tax when they filed earlier this year. For that reason, taxpayers may need to raise or lower the amount of tax they have taken out of their pay throughout the year.
With careful planning, any taxpayer can determine the correct amount of tax to ask their employer to withhold to avoid tax filing surprises at the end of the year.
To help them do that, the IRS urges everyone to do a Paycheck Checkup using the Withholding Calculator available on IRS.gov. To use the tool most effectively, employees should have a copy of the 2018 tax return they filed earlier this year as well as recent paystubs for all jobs held by both spouses if married and filing jointly. With these documents, employees can more accurately respond to the questions the calculator asks to help them better estimate their deductions, credits and other amounts for 2019.
Once a taxpayer enters their information into the Withholding Calculator, the tool will recommend the number of allowances the employee should claim on their Form W-4. In some instances, it will recommend that the employee also have an additional flat-dollar amount withheld from each paycheck to minimize any taxes owed at the end of the year.
Though primarily designed for employees who receive wages, the Withholding Calculator can also be helpful to some recipients of pension and annuity income.
If the Withholding Calculator suggests a change, the employee should fill out a new Form W-4 and submit it to their employer as soon as possible. Similarly, recipients of pensions and annuities can make a change by filling out Form W-4P and giving it to their payer. They should not send these forms to the IRS.
Anyone who needs to make a withholding change should do so as soon as possible. This will allow withholding to be spread evenly throughout the rest of the year. Also, for those who adjusted their tax withholding in the middle or later part of 2018, it is important to check again this year to make sure that over or under withholding is not occurring.
Instead of using the Withholding Calculator, employees with more complicated tax situations should use the worksheets and special instructions in Publication 505, Tax Withholding and Estimated Tax, available on IRS.gov. This includes those who expect to receive long-term capital gains or qualified dividends, or employees who owe self-employment tax, alternative minimum tax or tax on unearned income of minors.
Who should do a Paycheck Checkup?
Though doing a Paycheck Checkup is a good idea every year, for many people, it’s even more important this year. This includes anyone who:
- Expected to owe less tax or get a bigger 2018 tax refund.
- Has a major life change this year such as having a child, has a dependent older than 17, or has a relative who has become a dependent.
- Has a two-income family.
- Has two or more jobs at the same time or only works part of the year.