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All taxpayers should check their withholding ASAP

Following the biggest tax law changes in more than 30 years, the IRS continues to remind taxpayers to do a Paycheck Checkup to help make sure they are having the right amount of tax withheld.  Some taxpayers ended up receiving 2018 refunds that were larger or smaller than expected, while others unexpectedly owed additional tax when they filed earlier this year.

The IRS recommends doing a checkup even if you did one last year.

Anyone who needs to make a withholding change should do so as soon as possible.  This way if a tax withholding adjustment is needed, the amount of tax that needs to be withheld can be spread across more paychecks remaining in the year.

There are two ways individuals can check their withholding.

Most taxpayers will use the Paycheck Checkup.  To use the Withholding Calculator, google IRS.gov and click on Do a Paycheck Checkup Now.  You should have a copy of the 2018 tax return due earlier this year, as well as recent pay stubs for yourself and your spouse, if married and filing jointly.

Taxpayers with more complex situations may need to use the instructions in Publication 505 instead of the Withholding Calculator.  This includes employees who owe self-employment tax, the alternative minimum tax, or tax on unearned income by dependents.

Publication 505 can also help those who receive non-wage income such as dividends, capital gains, rents and royalties.

Any employee needing to make a change should fill out a new Form W-4 and give it to their employer as soon as possible.  Similarly, recipients of pensions and annuities can make a change by filling out Form W-4P and giving it to their payer.  They should not send these forms to the IRS.

Taxpayers should also check their withholding any time they have a major life change, such as getting married, getting divorced, having a baby, adopting a child, buying a home, retiring or starting college.

Some life changes might affect a taxpayer’s itemized deductions or tax credits.  The taxpayer should check their withholding if they experience changes to their medical expenses, taxes, interest expense, gifts to charity, dependent care expenses, education credit, child tax credit and earned income tax credit.

Some taxable income is not subject to withholding.  This includes income from self-employment, interest, dividends, capital gains, and retirement distributions.  People with this income who also have income from a job may want to adjust the amount of tax their employer withholds from their paycheck.

If you are not confident in your ability to calculate your withholding, contact your tax professional if you have one. Your tax professional may also have tax strategies which would reduce your taxes.

David Zubler is a tax accountant in East Tennessee, the author of three books, and a philanthropist.  All of his proceeds from the books go to a charitable foundation he created for underprivileged children.  He is also the founder of Your Tax Care which provides tax education. David can be reached for questions and consultation at yourtaxcare.com.