The Internal Revenue Service (IRS) has released another publication calling taxpayers to review their withholding status. The tip is a good one for taxpayers throughout the country. A failure to properly adjust one’s withholding status can result in a big tax surprise when filing one’s 2018 tax returns.
Why the big tax surprise? When you pay the IRS too much, the money sits with the government instead of working for you. But when you pay the IRS too little, you could get a penalty for underpayment.
Who is at risk? The IRS notes that certain taxpayers are at a higher risk of needing to adjust their withholding status. These groups include two-income earning families, those who work more than one job and families with children that take tax credits like the Child Tax Credit.
When do I need to change my withholding status? There are a few major events that trigger a need to change a taxpayer’s withholding status. A change in marital status or the birth of a child are two common examples. The major tax overall that went into law the end of 2017 with the passage of the Tax Cuts and Jobs Act (TCJA) is another.
How do I update my withholding status? The IRS website has a calculator that can help you determine if you need to update your withholding status. If you determine an update is in order, complete a Form W-4 to change your withholding status.
Those who do not pay taxes through withholding generally pay an estimated tax. This is common for certain business owners. Although a new Form W-4 is not required in this situation, it is still wise to review your estimated tax payments and make any adjustments as needed.