I think it is safe to say that spring has sprung and if you are anything like me, that means it’s time to spruce things up a bit – not just at home. Personal finances – payroll earnings/withholdings specifically, may need a spring cleanup . Changes to the tax law for 2018 are affecting the tax liability per filer. Intuit QuickBooks summarizes it nicely.
Changes affecting withholding include:
- Reduced tax rates
- Elimination of personal exemptions
- Increased standard deductions: $12,000 for singles, $18,000 for heads of households and $24,000 for married couples filing jointly
- Increased child tax credit: $2,000 per qualifying child and a new $500 credit for other qualifying dependents
- Changes to itemized deductions
A paycheck checkup is especially important if you or your employees:
- Are a two-income family
- Have two or more jobs at the same time or who only work part of the year
- Claim credits like the child tax credit
- Have dependents age 17 or older
- Itemized deductions in 2017
- Have high income or a complex tax return
- Have a large tax refund or tax bill for 2017
I have taken the IRS challenge to test the Withholding Calculator at https://www.irs.gov/individuals/irs-withholding-calculator. It is easy to use – all you need is your expected earnings and credits for the year, the amount of federal withholding you have paid in to date and the amount of withholding from your last paycheck. Results showed that, per my household, I should reduce the amount of withholding being taken by updating my W-4 with my employer.
Remember as a general rule, the fewer withholding allowances a taxpayer enters on Form W-4, the higher their tax withholding. Entering “0” or “1” on line 5 of the W-4 instructs an employer to withhold more tax.
If you are still not sure what is best for your situation, give us a call at Stapley Accounting Services, your QuickBooks and Payroll professionals in Cache Valley. We are always here to help you.