Who should use the withholding calculator now?

The IRS desperately wants to avoid handing taxpayers surprise tax bills next winter. Unfortunately, its withholding calculator is the only tool employees can use to right now to estimate their 2018 status and make changes to their withholding for the rest of the year by refiling their W-4s with you.

Key TCJA changes

Under the Tax Cuts and Jobs Act, tax liability shifts to adjustments to income and credits, from adjustments to income and tax. The law:

  • Almost doubles the standard deduction, thus eliminating most taxpayers’ ability to take itemized deductions on Schedule A (a key factor in determining the proper number of withholding allowances on W-4s)
  • Limits (e.g., the $10,000 state and local tax deduction) and suspends most itemized deductions (e.g., deductions for unreimbursed employee business expenses, tax preparation fees and safe deposit box fees) for taxpayers who could vault over the higher standard deduction amounts
  • Eliminates personal exemptions, but preserves the concept for W-4 purposes by officially renaming them to what payroll pros have always called them—withholding allowances
  • Increases the child tax credit
  • Changes the tax rates and brackets.

Tick, tick tick

Every pay period that ticks by is one less pay period for employees to better align their withholding with their tax liability.

Payroll Handbook D

The IRS says that seasonal workers, two-income households, households where a taxpayer has more than one job and taxpayers who used to itemize deductions on Schedule A should use the calculator.

The calculator will ask seasonal workers about the dates of their employment and will account for part-year employees’ shorter employment, rather than assume that their weekly tax withholding applies for the entire year. The calculator will then make recommendations for those employees accordingly.

For two-income households, the calculator will recommend how to complete a new Form W-4 for any or all employers, if needed. If a couple or taxpayer is at risk of being underwithheld, the calculator will recommend an additional amount of tax withholding for each job.

Itemizers should indicate whether they’ll be taking the standard deduction or will continue to itemize their deductions. If they’re itemizing, they’ll enter estimates of their deductions. The calculator will apply the new law to those amounts when refiguring withholding.

Scam alert: The calculator doesn’t request employees’ personally identifiable information, such as name, Social Security number, address or bank account number. Likewise, the IRS doesn’t save or record information employees enter into the calculator or send emails related to the calculator.

Employees who receive suspicious emails seeming to reference 2018 withholding should report those phishing attempts to the IRS at phishing@irs.gov.