Due to the recent tax law change, you are probably getting a large paycheck. Yes . . .you are getting more money now. Check it out if you don’t believe me.
Effectively, I gave you a raise. You’re welcome.
Now for the bad news . . . you probably need to withhold more from your paycheck. The IRS release a new withholding calculator this month that allows you to estimate how much you need to withhold in order to avoid larger taxes next year. The IRS also has a new withholding table. If you’re like me, you will probably spend the next few hours plugging in figures to the calculator to lower your taxes next year. I recommend using a tablet or laptop. My phone screen was to small and now I am slightly cross-eyed.
Either tool can help you determine whether you’re still claiming the right number of withholding allowances on the Form W-4 that you filled out for your employer when you started your current job, got married or had kids. Good news for fellow kid havers . . .they save you more money on your taxes! (Note: they probably cost you more money long term . . .but we can worry about that later).
The number you chose when you started your job may not be the right one for 2018. I REPEAT . . . YOU MAY NEED TO CHANGE YOUR WITHHOLDING. That’s because the new tax law changed the underlying structure on which withholding allowances are based, particularly by eliminating the personal exemption and changing the eligibility for a now-expanded child tax credit.
While it would be a good idea for everyone to double-check their allowances, it’s especially recommended if you have a more complex tax situation. For instance, you have more than one job or an outside source of income, you normally take a lot of itemized deductions, or you and your spouse both work and have a few kids. If you are looking for ways to lower your tax burden, check out our article on HSA plans: the easiest way to get free money in 2018.
Stay rational. You’ll thank us in April.
-B&T