Can you remember the last time you reviewed your payroll deductions? If you are like many Americans, you may not have updated them in quite a while. Although you might not have had a reason to do so before, a recent change in the tax code actually influences employee withholdings. In fact, the IRS recommends that every working American review their deductions as soon as possible.
Is it Time to Review your Payroll Deductions?
The IRS has long advised employees to do a “paycheck checkup” at the beginning of each year or after a change in personal circumstances, such as a marriage or a divorce. But, new tax laws make it especially important that all Americans take a second look at what is being withheld from their paychecks.
The Tax Cuts & Jobs Act made several significant changes that impact how much you might pay in 2018 income tax, including:
- Increasing the standard deduction
- Removing personal exemptions
- Increasing the child tax credit
- Limiting or discontinuing certain deductions
- Altering tax rates and brackets
Who should check their Withholdings
Even though everyone should do a “paycheck checkup” after the new tax law, these groups of people could particularly benefit from the exercise:
- Two income families
- People with two or more jobs at the same time
- Seasonal employees
- Those who claim credits, like the child tax credit
- People with dependents age 17 or older
- Anyone who itemized deductions in 2017
- Those with high incomes or complex tax returns
- Anyone who had a large tax refund or tax bill in 2017
A Quick ‘Checkup’ could Save you Money
Taking a minute to double-check your payroll deductions could prevent you from having too little or too much tax withheld from your paycheck. To prevent an unexpected tax bill, you could use the IRS’s simple Withholding Calculator. It will give you all the information you need to fill out a new W-4. Just have your last tax return handy for reference.
It pays to not to wait to review your payroll deductions, because overpaying or underpaying income taxes for too long can influence the size of your next tax return.
If you think that you may need to make changes to your payroll deductions, you can fill out a new W-4 and submit it to your employer. You may also need to make adjustments to state and/or local withholdings at the same time.
If you have any questions about taxes or other personal financial planning topics, contact a local tax professional.