The new tax law made some sweeping changes in terms of personal and dependent exemptions and enhancements to the child tax credit. As you're gearing up for tax season though, keep in mind that the changes as a result of tax reform largely go into effect next year, when you're filing your 2018 tax return in 2019.
"This year, filing is business as usual," says tax attorney and certified financial planner Rebecca Walser. "It's next year that will be really different."
What you will see this year are changes to your paycheck — many Americans will see a boost — since the IRS has updated the income tax withholding tables. This also means that every employee should review their W-4, the form that determines how much income tax is withheld from your pay, to make sure you're withholding the right amount under the new legislation.
You fill out a W-4 when you start a new job, but you can change it as necessary. The form asks for the number of allowances you want to claim, since you get an allowance for having a spouse, for example, or having kids or filing as a head of household, and those allowances affect how much of your paycheck will be set aside for taxes.
It's important to get the right amount withheld: If you don't withhold enough, you may owe the IRS come tax time, and if you pay too much, you could end up with a large refund, which means you've essentially given an interest-free loan to the government.
"The old way to fill out a W-4 was, you would put a '1' for yourself, another '1' if you're married and you would put the number of children that you have that are dependents," Walser tells CNBC Make It. "You would add those all up and claim a withholding exemption for the amount of total exemptions that you have. But because this new law changes the fact that we are not going to get an exemption per person, the W-4 form needs to be updated."
It's particularly important to review your withholding this year if you itemize your deductions, own a home, are self-employed or are in any other situation that complicates your tax return, says Walser: "If you have somebody who's itemizing or has any kind of special circumstances outside of the norm, then their withholdings are probably going to be quite off."
How do you know if you'll have to adjust your withholding? Start by using the IRS withholding calculator, which it recently updated. Then review what your current withholding is.
"It they do not match up, you'll want to request a W-4 and change your withholding so that they are not over-withholding or under-withholding," says Walser. You don't have to wait until the new W-4 is available to update your withholding: "You can go into your old, existing form and have your HR department update it even before the new form is ready."
It's good practice to review your withholding every year, says Walser, but especially this year.
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