Articles

Check Your Tax Withholdings!

In Accounting & Finances, Business, Taxes on September 24, 2018 by Sufen Wang

It’s Back to School for Everyone! Time to Do Your Tax Withholding Homework

School is starting up again, and while the little ones learn their ABC’s, you can check your paystub 123’s. Just like taxpayers with complex returns, if you have children or other dependents, you’ll want to give your withholding a review first thing. If you wait, you might end up learning your lesson too late, and be scrambling to find funds to pay down a bigger tax bill than you expected.

That’s why you should use the IRS.gov Withholding Calculator to test whether you’re having the right tax amount taken from your check each pay period. It’s way easier than any math exam you’ve ever had. All you need to do is fill in the blanks with your expected 2018 income, credits, deductions, etc., and then voila! you’ll automatically get your results and the IRS’s recommendations.

If you’re withholding too much each pay period, your Calculator message might say something along the lines of:

Based on the information you previously entered, your anticipated income tax for 2018 is $XXXX. If you do not change your current withholding arrangement, you will have $XXXX withheld for 2018 resulting in an overpayment of $XXX when you file your return. If you want your withholding to more closely match your anticipated tax, adjust your withholding on a new Form W-4 as follows…

But if you’re not withholding enough (AKA flunking this test), you might see:

Based on your responses, your anticipated income tax for 2018 is $XXXX. If you do not change your current withholding arrangement, you will have $XXX withheld for 2018 leaving $XXXX due when you file your return. To meet your anticipated tax of $XXXX change your current withholding arrangement by claiming X allowances plus an additional amount of $XXX for the balance of 2018. Here’s how…

Wait, why am I doing this again, you might be asking. Well, the recently implemented Tax Cuts and Jobs Act is likely to have some effect on what your correct withholding should be. So here’s a back-to-the-basics study guide of new tax law changes that could affect you if you’re a parent or a caretaker:

 

Personal Exemption

  • The personal exemption that you could formerly claim for yourself, your hubby/wife, and your dependents has been squashed, X’d out, erased from the chalkboard – so don’t plan on getting it. Even though the new tax law also increased the standard deduction, the loss of the personal exemption will likely hit families with 2 or more children hard.

Child Tax Credit – Luckily, some updates to the Child Tax Credit should soften the blow from the end of the personal exemption. Namely:

  • Instead of $1000, the maximum credit you can get is now $2000 per qualifying child.
  • If your income was previously too high to get in on that Child Tax Credit, you might find out that you qualify for it this year because:
    • The credit phases out now at $200,000 for singles and $400,000 for couples (last year was $75,000 for singles and $110,000 for couples).

Additional Child Tax Credit

  • The maximum additional child tax credit jumped from $1000 to $1400.
  • It’s also now a refundable credit if you’re all square on your owed federal income tax.

 

Credit for Other Dependents

  • If you support other dependents, there’s a brand new $500 credit up for grabs.
    • To get it, you’ll simply claim it when filing your tax return.
    • “Other” dependents include qualifying children or qualifying relatives, such as your kid at college (who you probably still tell “you can’t do that under my roof,” even though they’re off in their dorm), or an elderly parent (who probably still tells you “you can’t do that under my roof,” even though they’re living in your house).

As you can see, a lot has changed from last year’s tax laws. Even if you’re in the single file…r line, it’s a good idea to put on your thinking cap and figure out your withholding. Once you do this, you can sleep like a baby. Or you can stay up late like an adult at the university of life, reading more about withholding and the new tax laws on IRS.gov.

Sufen Wang, M.S. Accountancy
www.sufenwang.com
Wang Solutions, Long Beach, CA (562) 856-0793

Editor: Hannah Huff, M.F.A. Creative Writing: Poetry, (626) 806-5805

 

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