It’s the middle of the year. Have you done a “Paycheck Checkup” yet?
It is always a good idea for taxpayers who work multiple jobs or who may be adding summer employment to complete a Paycheck Checkup.
Doing this will help you check if you are having the right amount of tax withheld from your paychecks. Checking and adjusting tax withholding as early as possible in 2019 is the best way to head off a tax-time surprise next year.
The Tax Cuts and Jobs Act (TCJA) made changes to the tax law. Among other things, the new law increased the standard deduction, eliminated personal exemptions, increased the child tax credit, limited or discontinued certain deductions and changed the tax rates and brackets. As a result, many taxpayers ended up receiving refunds that were larger or smaller than expected, while others unexpectedly owed additional tax when they filed their 2018 tax returns.
Two-income families and people with multiple jobs may be more vulnerable to being under-withheld or over-withheld following these major law changes.
For 2019, a Paycheck Checkup is especially important for taxpayers who adjusted their withholding in 2018, specifically in the middle or later parts of the year. Doing a Paycheck Checkup can help determine the correct amount of tax for each of their employers to withhold.
The easiest way to do a Paycheck Checkup is to use the Withholding Calculator on IRS.gov. The Withholding Calculator can help taxpayers estimate their income, credits, adjustments and deductions more accurately and check if they have the right amount of tax withheld for their financial situation. When using the calculator, it’s helpful to have a completed 2018 tax return and a recent pay stub available. Based on the Withholding Calculator’s recommendations, the taxpayer can then fill out and submit a new Form W-4 to their employer. In many instances, this means claiming fewer withholding allowances or having an extra flat-dollar amount withheld from their pay?
Some workers are considered self-employed and are responsible for paying taxes directly to the IRS. Often, this includes people involved in the sharing economy. One way to pay taxes directly to the IRS is by making estimated tax payments during the year. TCJA changed the way tax is calculated for most taxpayers, including those with substantial income not subject to withholding. As a result, many taxpayers may need to raise or lower the amount of tax they pay each quarter through the estimated tax system. The revised estimated tax package, Form 1040-ES, on IRS.gov is designed to help taxpayers figure these payments correctly. The package includes a quick rundown of key tax changes, income tax rate schedules for 2019 and a useful worksheet for figuring the right amount to pay.
Anyone who had a life change, such as getting married or divorced, buying a home or having a baby should also consider a Paycheck Checkup.
If you are uncertain after checking all your figures as to what you should do, give Franek Tax Services in Cary North Carolina a call for a free tax consultation at (919) 637-6731.