Changes to Tax Withholding
The Tax Cut and Jobs Act (TCJA) made it difficult for taxpayers to estimate how much tax should be withheld from their paychecks. Unfortunately, many under withheld and, as a result, either had to pay more or did not get as large of refund.
A new updated Form W-4 now reflects the changes of the TCJA. This includes such things as the doubling of the standard deduction, eliminating personal exemptions, and limits on certain itemized deductions. The new form is located at www.irs.gov/pub/irs-pdf/fw4.pdf.
The new form will ask you to account for multiple jobs within your household, and to spell out the details of any other income that didn’t have taxes withheld, including interest, dividends and retirement income. An additional section asks taxpayers to claim their dependents, and to factor in the $2,000 child tax credit for those under 17, or the $500 credit for other qualifying dependents.
Retirees also need to reevaluate their withholding amounts. They can use Form W-4V to withhold a flat rate from their Social Security check or Form W-4P to withhold from their pension.
Tax experts say the best way to fill out the new W-4 is to sit down with an expert or tax preparer – having last year’s Form 1040 in front of you. Doing that, as well as adjusting for any significant income fluctuations that ocurred, will hopefully allow you to withhold the proper amount.