That Probably Means You, but Temper Your Glee With Caution!
The good news is that paychecks will increase by about 1% to 2%. The less than good news is there are a number of moving parts in the new tax law that may affect how much you may owe in taxes come April of 2019. Consider this bit of explanation to clarify the potential results.
Effective January 1, 2018, the tax overhaul included shifts in tax brackets, increasing the standard deduction and eliminating personal exemptions. The IRS issued a revised withholding table and employers are instructed to begin using those numbers to determine withholdings from employee paychecks effective no later than February 15, 2018. The new tables will reflect across-the-board reductions in tax rates, generally in the range of 2 to 3 percent.
Here’s the potential for a “disconnect”. Your IRS W-4 form is the “source document” that determines how much is withheld from your paycheck. Your income, marital status, payday frequency and the number of withholding allowances you claim are all key elements.
That said, the only W-4 form available is based on last year’s tax laws and reflects deductions no longer available under the new tax law.
Bottom-line is that while your take-home pay may increase, it may also result in an unexpected higher bill for 2018 taxes. That means if you don’t withhold enough throughout the year, you may have an unpleasant surprise next spring, i.e. April 2019.
So, what to do? Two options for you to consider once you have received your February paycheck(s). Assuming you receive a bump in your take-home pay, don’t spend it immediately.
• Later this month (February) the IRS will make a new calculator available that you may access to ensure you are having the correct amount withheld each pay period.
• For more immediate answers, or if your circumstances are complex, consult with a tax professional to analyze the new table to make sure your withholdings are adequate to support a bigger paycheck now but not trigger a bigger tax bite at year end.
Your answers to one or the other approaches will empower you to revise your W-4 information to minimize or eliminate any negative impact on your tax liability.
As ever, Blair + Assoc stands ready to help!
Give us a call or an email. We’ll respond promptly.