A major tax law was passed in late December 2017 that will affect almost everyone’s 2018 federal taxes. The law was meant to reduce everyone’s taxes and put more money in their pockets. To help employees benefit from the anticipation of lower taxes, the IRS developed new tables which lowered the amount of federal income tax being withheld from employees. In theory, this makes sense in light of the new tax law.
Over the last few weeks, the IRS has been issuing news releases stating that employees should check their withholding…soon. Some of the releases have been titled:
“IRS urges workers to check withholding”
“IRS urges taxpayers to check withholdings soon to avoid a year end surprise”
“Taxpayers with high income, complex returns: Check withholdings soon”
“Taxpayers with children, other dependents should check their withholdings soon”
There seems to be a lot of urgency in these notices, don’t you think? While it’s always good to check your withholdings from time to time, the IRS almost seems nervous about 2018 withholdings. Could it be they have been too aggressive in reducing your withholdings? Many taxpayers may be surprised, not in a good way, when they file their 2018 returns and find they owe additional taxes. Not only that, if enough tax was not withheld or paid in, penalties and interest may apply.
The IRS has come out with a “Withholding Calculator” at https://www.irs.gov/individuals/irs-withholding-calculator for employees to check and see if you may be short on withholding. This seems to be a more comprehensive calculation then the worksheets associated with federal Form W-4.
So, the answer is probably yes. You should check your withholdings and use the IRS’s withholding calculator to see if you are having enough federal taxes withheld. If you have sources of income that are not subject to withholding (e.g. interest, dividends, rents, income from pass-through entities) or significant itemized deductions, you should contact your tax advisor and have a 2018 projection prepared.