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Show me the money!

“Show me the money!” If you quoted Jerry Maguire a couple of months ago when the media reported the new Tax Cuts and Jobs Act, hopefully you are feeling a little bit richer now. As a result of the tax law and its implications for next year’s returns, the IRS has released new withholding tables. These tables were to be implemented by employers by the end of February.

You may have already seen an increase in your take-home pay due to this new withholding guidance. In fact, the Congressional Budget Office estimates the new tables will result in up to fifteen billion dollars less being withheld from paychecks nationwide each month. If you have not seen an increase in your pay, it does not necessarily mean that you will not benefit from the new tax law. Keep in mind that tax withholding is just one of many possible deductions from your gross pay; changes in amounts going towards cafeteria plans, retirement accounts, and especially health insurance also impact your check.

The new withholding tables were released with the expectation that they will work with employees’ existing W-4s. Form W-4, or the Employee Withholding Allowance Certificate, is submitted by workers to their payroll department to show how many allowances they want to claim. Allowances are based on filing status, number of dependents, whether or not the taxpayer expects to itemize, expected tax credits, and other situations affecting the employee’s tax return. The more allowances claimed on the W-4, the less tax withheld from the paycheck.

Even though the IRS says the revised tables reflect key elements of the new tax law such as the nearly doubled standard deduction, the elimination of personal exemptions, and changes in tax rates and brackets, the tables will work best for those with simple tax situations. For many taxpayers, existing W‑4s will not result in the correct amount of withholding. The IRS’s FAQ page says those who expect to continue to itemize and those with more than one income reported on their tax return may be under-withheld. Also, if you have experienced changes in your tax situation, or if you expect to benefit from changes to the child tax credit, you should review your W-4.

The IRS has also released an updated withholding calculator to assist employees with filling out an accurate W-4, and we recommend you check it out. The calculator is designed to withhold an amount that is close to the taxpayer’s estimated tax liability. Following the recommendations of this calculator may result in having a much smaller than usual refund or even in owing a small balance, but you could end up with more money in each paycheck. Some taxpayers prefer to get a large refund as a sort of “forced savings;” if this is you, then you will certainly need to review and adjust your W-4. Withholding isn’t an exact science, but with proper planning it is possible to maximize your take-home pay without facing an unpleasant surprise when filing next year’s tax return. We are happy to discuss withholding issues with our clients, and we are available year-round to help navigate changing circumstances. Show you the money? It might be in your next paycheck!





Down South Accounting & Tax


Tel: (252) 364-2900

Fax: (252) 364-8933

 

Email:  kspruill@downsouthtax.com

             ddavis@downsouthtax.com

Address​​​​​​: 1025-D Director Court

             Greenville, NC 27858

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