New tax law, new withholdings? When to review your paycheck.
The new tax law has led to a number of changes that could impact your tax bill. As a result, you may need to review how much of your tax bill is covered by your paycheck. In some cases, you may need to adjust your tax withholding status.
Who should review their withholdings? The Internal Revenue Service (IRS) recommends that taxpayers that do not have a “simple situation” take a closer look at their withholdings. The agency clarifies that by “simple situation” they mean those who are married with one job and no dependents.
More specifically, the agency recommends any family with the following factors review their withholdings:
- Two incomes
- Children
- Itemization of tax returns
- High income earners
- Complex returns, like those with business interests
Why does my withholding status matter? A failure to withhold the proper amount of taxes can result in penalties. In addition to an unexpected tax bill, the IRS could fine you for a failure to take out the appropriate amount from your paycheck.
You could face this penalty if your withholdings cover less than 90 percent of your tax obligation. The penalty is determined using a calculation based on the interest rate charged by the IRS.
What if I need to make a change? Taxpayers looking to change their withholding status can complete a Form W-4. This form is turned into your employer and should result in the needed change.
What if I have a tax issue? Tax controversies can result from an incorrect tax withholding status. In some cases, it is wise to seek legal counsel if you find yourself facing an unexpected tax bill. An attorney can review the matter and provide counsel on the best course of action to protect your interests.