Do I need to give my employer a new W-4?

Posted by Jorge Guerrero, CPA

With the new tax law in full effect, it’s a good idea to reexamine your federal tax withholding for this and future years. Since the Tax Cuts and Jobs Act (TCJA) eliminates personal and dependent exemptions, caps the state and local income tax deduction at $10,000, and doubles the standard deduction, many taxpayers will no longer be able to itemize on Schedule A. As a result, these changes could result in a larger refund for some taxpayers and an unexpected tax bill for others.

The new 2018 W-4 may not look much different at first, but its supporting schedules have experienced significant changes. First, the Personal Allowances Worksheet, which used to be on page 1 above the W-4, has been moved to page 2 and changed to incorporate the child and dependent care credits. The Deductions and Adjustments Worksheet has been updated for the increased standard deduction amounts.  Finally, the tables that are part of the Two-Earners/Multiple Jobs Worksheet have also been adjusted to reflect the changes to the tax brackets.

To help with completing the W-4, the IRS has updated the IRS Withholding Calculator.

Determining IRS Withholding

To use the IRS calculator, you will need a copy of your most recent paystub(s) and last year’s tax return. The calculator will not ask for any personally identifiable information such as a name, address, social security number, or banking information. It will ask for your:

  • Filing status
  • Year-to-date federal tax withheld
  • Tax withheld for the current pay stub
  • How often you are paid
  • Number of persons qualifying for child and dependent care credits and the earned income credits (if you qualify)
  • Any nonwage income
  • Any adjustments to income such as IRA contributions or educational loan interest
  • Information from your prior year Schedule A (to estimate your 2018 itemized deductions – if necessary)

The above information is entered in four pages of input screens with a fifth page displaying the results. If you like the results, there is no need to complete the W-4.  If you want to make a change to your withholding, simply complete page 1 of the W-4 and submit ONLY this page to your employer to adjust your withholding.  If the calculator projects an amount owed, it is recommended you increase your withholding amount to avoid unnecessary underpayment penalties. Keep in mind that all withholding is treated as being withheld throughout the year even if the largest amount is withheld in the last pay period of December!

In the end, it is a good idea use the calculator at least once a year or when you have a major life a change such as changes in filing status, a new or second job, or addition/subtraction of qualifying credits (mentioned above). Regardless, the IRS recommends redoing the calculation in early 2019 even if you made a change for 2018.

IF you have any questions, please feel free to contact one of our tax professionals.

All blog posts are valid as of the date published.

Photo by Tax Credits (License)

Leave a Reply