- Changes are coming to key forms that help determine your income tax.
- Withholding the right amount can be the difference between owing the IRS and getting a refund.
The tax overhaul is likely giving your paycheck a boost, starting in February.
So now is a good time to take a second look at your tax withholding at work.
The Treasury Department released its income tax withholding tables, reflecting changes stemming from the Tax Cuts and Jobs Act. In all, the new legislation has increased the standard deduction, done away with personal exemptions and trimmed individual income tax rates.
This means you could start seeing changes to your paychecks as early as this month.
"My general sense in looking at the withholding tables, is that people are going to end up in a favorable position if they don't do anything," said Cari Weston, director of tax practice and ethics at the American Institute of Certified Public Accountants.
"The brackets have changed, but so have the income ranges," she said.
Still, it's a good practice to take a look your withholding to make sure you're deducting the correct amount of taxes under the new legislation.
"You don't want a big refund, where you're giving an interest-free loan to the government," said Melissa Labant, director of tax policy and advocacy at the institute.
"You also don't want a big balance due," she said.
For now, the Treasury's guidance is intended for employers to make adjustments to their payroll systems.
It's intended to work with a key form — the W-4 — that determines how much income tax is withheld from your pay, based on whether your spouse works, whether you have children and other factors.
At the moment, the IRS intends its guidance to work with the W-4 you currently have on file at your employer.
However, the agency is working on a new Form W-4, and it plans to roll out a calculator that will reflect the new tax law by the end of the month. Further changes will be coming in 2019.
Reviewing your W-4 is a good practice in any tax year. If not enough is withheld, you'll owe money come tax time. Pay too much, and you end up with a large refund.
"You may have different circumstances now compared to when you started working at your employer," Labant said.
Major life changes, including having a child or getting married, may warrant an update to your withholding.
For reference, here are the new income tax brackets for married couples.
In the past, it may have made sense for people who itemize deductions to claim more allowances on their W-4 and have less tax withheld.
This may no longer be the case now that the standard deduction has nearly doubled to $12,000 for singles and $24,000 for married couples who file jointly.
About 49 million taxpayers — 28 percent of filers — itemize, according to the Urban-Brookings Tax Policy Center.
"Now that they've doubled the standard deduction, there may be people who are no longer eligible to itemize," said Lisa Greene-Lewis, a certified public accountant at TurboTax. "Be aware that you might not get as many allowances on your W-4."
"Given the changes in the tax code, it's a good time to look at your W-4," Labant said. "You don't want any surprises, especially when that surprise is a large balance due come tax time."
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