On December 22, the President signed the tax reform bill into law, but it’s important to keep in mind that for most people, the bill does not affect their taxes for 2017 (the ones they file in 2018).
As you are sitting down to file your 2017 taxes, you may be wondering what to expect and what moves you should make now since most tax laws will change for tax year 2018. One of the most important changes you can make is to check and make sure you are having the correct amount of withholding taken out of your paycheck since you may start seeing more money in your paycheck related to lower tax rates under the new law.
How will the new tax laws impact my withholding on my paycheck?
Under the new rules, individual tax rates are being lowered to 10%, 12%, 22%, 24%, 32%, 35% and 37% and these new rates will be reflected in the amount of money being withheld from your 2018 paychecks, as well as your tax liability for 2018.
The IRS recently updated withholding tables with the new rates for employers to use during 2018. Employers will begin using the new withholding information no later than Feb. 15, 2018. The new withholding tables are designed to work with the Forms W-4 that workers have already filed with their employers to claim withholding allowances.
For people with simpler tax situations, the new tables are designed to produce the correct amount of tax withholding. The revisions are to help withhold the correct amounts from taxpayers’ paychecks.
In addition, changes in the new law, such as changes in available itemized deductions, increases in the child tax credit, the new dependent credit and elimination of personal and dependent exemptions will impact your withholding on your paycheck.
The IRS is also working on revising the Form W-4 to reflect additional changes in the new law, such as changes in available itemized deductions, increases in the child tax credit, the new dependent credit and repeal of dependent exemptions so employees can update their withholding in response to the new tax law changes.
Each year, federal withholding should be close to your ultimate tax liability so you don’t owe money at tax time.
Do I need to file a new Form W-4 with my employer?
Because of the changes to the 2018 tax laws such as changes to itemized deductions, increased child tax credit to $2,000, the new dependent credit, and the eliminations of dependent and personal exemptions, you should file a new Form W-4 with your employer in response to the new tax law, if your personal situations changed, or if you started a new job.
Form W-4 (Employee’s Withholding Allowance Certificate) is completed and submitted to your employer so they know how much tax to withhold from your pay. Typically, you would file a new W-4 when your personal or financial situation changes. A W-4 form takes into account the number of people in your household; tax credits; deductions and other income; and if you have more than one job or you’re a two-earner household.
TurboTax has you covered and will be up to date with the latest tax laws. If you have more questions while doing your taxes, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent to get your tax questions answered and also have your return reviewed, signed, and filed. A TurboTaxLive CPA or Enrolled Agent can also answer your questions about your W-4 come tax filing time.
Brought to you by TurboTax.com