The IRS urges high-income taxpayers and those with complex tax returns to complete a “paycheck checkup.” Doing so will help them see if they are having the correct amount of taxes withheld from their paychecks for the rest of this year. The IRS Withholding Calculator and Publication 505, Tax Withholding and Estimated Tax, can help these taxpayers do their checkup.
The Tax Cuts and Jobs Act, which was passed last year, brought many tax law changes. With that in mind, a checkup is important for taxpayers with high incomes and complex returns because they are often affected by more of these changes than someone with a simpler return.
Here are some of the law changes that could affect these taxpayers:
- Changes to tax rates and brackets.
- Expansion of the child tax credit.
- The standard deduction nearly doubled to $24,000 for joint filers and $12,000 for singles.
- A $10,000 cap on deductions for state and local property, sales and income taxes.
- New limits on deductions for some mortgage interest and home equity debt.
- Higher limits on the percent of income a taxpayer can deduct as charitable contributions.
- No deductions for miscellaneous expenses. In prior tax years, these had to exceed 2 percent of a filer’s income to qualify. These included investment expenses and unreimbursed employee expenses such as travel, meals, entertainment and uniforms.
In the past, high-income taxpayers often found more benefit in itemizing than using the standard deduction. After these tax law changes, people should revisit their options. It may be valuable for some people who used to itemize to determine whether they will continue itemizing or take the standard deduction.
If a taxpayer checks and finds they need to adjust how much tax is withheld from their paycheck now, they can prevent an unexpected tax bill and penalties next year at tax time. Taxpayers need to adjust their withholding as soon as possible for an even withholding amount throughout the rest of the year.
Employees can use the results from the Withholding Calculator or Publication 505 to help determine if they should complete a new Form W-4, Employee’s Withholding Allowance Certificate, and what information to include.
Taxpayers also need to determine if they should make adjustments to their state or local withholding. They can contact their state’s department of revenue to learn more