The Tax Cuts and Jobs Act (TCJA) ushers in some of the biggest tax changes we’ve seen in years. The main change that will have an impact on virtually everyone is the issuance of new tax tables – both the rates and the brackets have undergone major changes. So what does this mean in “I don’t speak CPA” terms?…It means that one guest at the tax forms party just got a makeover – there’s a new W-4 in town, and it wants you to notice it.
It’s not mandatory to fill in this new form, but the W-4 determines how much federal tax is withheld from each paycheck. This makes the W-4 (and its new makeover) pretty stinking important. Take out too little tax, and you may owe the IRS in April. Take out too much, and you may get a refund (NOTE: this is giving the IRS an interest-free loan!) as well as not having as much take-home pay.
Unfortunately, the makeover didn’t change how confusing the form can be to fill out. But maybe we can help lift the veil and help this makeover not look so botched to you. Whether you’re an employee or an employer, there’s something here for you. See how the changes below may effect your taxes as we break it down for ya!
Personal Exemptions are Leaving the Party Early:
One of the most interesting changes wrapped into the TCJA was the doubling of the standard deduction, and the elimination of all personal exemptions – say “so long” to that $4,050 you got for yourself, your spouse and each dependent.
Kid Friendly Party – the Kiddos Earn Their Keep:
Another (probably more popular) change is the doubling of the Child Tax Credit from $1,000 to $2,000 for each qualifying child. A “qualifying child” is a child that has lived with you for more than half the year and is under age 17 as of December 31, 2018. (NOTE: this is a credit – a delightful dollar-for-dollar reduction in the amount of tax you owe!). This could really change the tax landscape for some parents AND there’s a $500 credit for non-dependent children.
We’ll Take a Round of Credits on the IRS, Please:
Publication 505 Worksheet 1-6 can be filled out for the following additional credits:
- American Opportunity Credit
- Lifetime Learning (MAGI less than $57,000 / $114,000 Married Jointly)
- Retirement Savings Contribution Credit (MAGI less than $31,500 / $63,000 Married Jointly)
- Adoption Credit
No Surprise Parties for Married Folks:
If you’re married, will be filing jointly, and both spouses have income, there’s a worksheet for you too! Often the second income, when “stacked” on top of the first income, puts the couple in a higher tax bracket than either salary alone is in. The last page of the new W-4 form has a worksheet to fill in, that will allow you to make some withholding changes to eliminate a surprise in April.
NOTE: Don’t forget the “hidden” income – interest, dividends, capital gains, gambling winnings, IRAs, etc. They add up quickly, and your paycheck withholding has to cover this income as well!
For the Fashionably Late:
If you’re concerned about the fact that it’s July, that means there are still 5 months left in 2018 to fix any problems you may have with your withholding. In fact, a Jackson Hewitt study showed that as of June, 72 percent of respondents had not reviewed their paycheck and associated withholdings.
But how do you know if you have a problem? Well the IRS, and On A Ledger Accounting, are here to help you find out…if you fall into any category described above, it’s probably worth your while to do a Paycheck Checkup!
Start by gathering the following information:
- 2018 paystubs (only the most recent are necessary)
- 2017 Income Tax return
- Consider changes to your 2017 income and situation to ensure the information entered is as accurate as possible. Such changes might include a change in your marital status, change in the number of children, employment changes, new businesses and investments, etc.
- Don’t worry about your Social Security Number – you won’t be required to enter any personal information to use the calculator!
If you’re ready, go to the Withholding Calculator. Near the bottom is an IRS-blue bar to click to begin!
Once in, you’ll be asked questions regarding filing status, dependents, income, credits, etc. They’ll let you know if you’ve missed a crucial piece of information. The last screen recaps the information you entered (you’ll have the chance to start over) and suggestions on how to fill out the W-4, regardless of how far we’ve gone this year.
To get a peek at the current withholding tables, they’re in IRS Notice 1036.
We know accounting and taxes may not be the most fun to you…but we’ll make our number crunching parties and information at least tolerable for you. On a Ledger is happy to help with any CPA, financial or Profit First questions you may have!