Payroll Checkup Recommended for Taxpayers by IRS

The new tax law has made some significant changes in the expected tax liabilities for many taxpayers.  While the standard IRS withholding calculator works in simple cases, the IRS has issued a News Release (IR-2018-73) that suggests certain taxpayers need to perform a “Paycheck Checkup” on their withholdings.

The IRS has published a series of three YouTube videos on this topic that the news release refers to.

  • Paycheck Checkup — English
  • IRS Withholding Calculator Tips — English
  • Do I Need to Fill Out a New W-4? — English

The IRS gives the following advice:

The IRS always recommends employees check their withholding at the beginning of each year or when their personal circumstances change to make sure they’re having the right amount of tax withheld from their paychecks. With the new tax law changes, it’s especially important for certain people to use the Withholding Calculator on to make sure they have the right amount of withholding.

Among the groups who should check their withholding are:

  • Two-income families.
  • People working two or more jobs or who only work for part of the year.
  • People with children who claim credits such as the Child Tax Credit.
  • People with older dependents, including children age 17 or older.
  • People who itemized deductions in 2017.
  • People with high incomes and more complex tax returns.
  • People with large tax refunds or large tax bills for 2017.

The law increased the standard deduction, removed personal exemptions, increased the child tax credit, limited, or discontinued certain deductions and changed the tax rates and brackets.

While the IRS advice is fine, most of us realize that the advice does not really go far enough.  Several changes in the new law can’t easily be handled by the online calculator.  Most individuals likely are using their 2017 withholding allowance numbers and haven’t considered whether, under the new law, that level of withholding is appropriate.

Advisers may wish to consider contacting clients regarding the impact of the new tax law and the issue of what amount of withholding is appropriate in their circumstances.