The Tax Cuts and Jobs Act changed the way taxable income is calculated and reduced the tax rates on that income.
The IRS had to address and make changes to income tax withholding in response to the new law as soon as possible after it passed. This issue affects every taxpayer who receives a paycheck.
The U.S. tax system operates on a pay-as-you-go basis. Taxpayers must generally pay at least 90 percent of their taxes throughout the year through withholding, estimated or additional tax payments or a combination of the two.
THIS MEANS THAT…you need to pay most of your tax during the year, as the income is earned or received. If you don’t, you may owe an estimated tax penalty when you file.
For employees, income tax withholding is the amount of federal income tax withheld from your paycheck. The amount of income tax your employer withholds from your regular pay depends on two things: The amount you earn. The information you give your employer on Form W–4, Employee’s Withholding Allowance Certificate.
The IRS issued new withholding tables for 2018 to reflect the changes in tax rates and tax brackets, the increased standard deduction and the suspension of personal exemptions, among other things.
The IRS also reissued withholding tables, which show payroll service providers and employers how much tax to withhold from employee paychecks, taking into account each employee’s wages, marital status, and the number of withholding allowances they claim.
The IRS also modified Form W-4, Employee’s Withholding Allowance Certificate, which is the IRS form that employees provide to their employers, so that the employer may determine the amount of federal income tax to withhold from the employees’ paychecks.
The form helps employees adjust withholding based on their personal circumstances, such as whether they have children or a spouse who is also working.
The IRS recommends employees check their withholding any time their personal or financial information changes. The Form W-4 relates to an employee’s federal income tax withholding. State income tax withholding is separate.
THIS MEANS THAT…You should have started seeing withholding changes in your paycheck around the end of February 2018. The exact timing depends on when your employer made the change and how often you are paid. You still need to check your withholding and make sure it is correct so there is no surprise at tax filing time.
Just as the amount of your withholding has changed based upon the change in tax rates, you may also need to adjust your withholding or make estimated or additional tax payments due to other changes in the tax law.
You should review your withholding in 2018 and make adjustments if there is still time this year. Review your withholding again, early in 2019 to make sure you don’t have too little or too much withheld from your paychecks next year.
To help with this, the IRS issued a new Withholding Calculator and updated Form W-4 to help you check and update your withholding with your employer, if necessary.
You can use the Withholding Calculator to estimate your income tax. The Withholding Calculator compares that estimate to your current tax withholding and can help you decide if you need to change your withholding with your employer.
The new withholding tables were designed to produce the right amount of withholding for people with simple tax situations. Some people have more complicated tax situations and face the possibility of not having enough income tax withheld by their employer. If not enough tax is withheld by your employer, you could have an unexpected tax bill and even a penalty when you file your return next year.
Major tax reform that affects both individuals and businesses was enacted in December 2017. It’s commonly referred to as the Tax Cuts and Jobs Act, TCJA or tax reform.
The IRS estimates that we will need to create or revise more than 400 taxpayer forms, instructions and publications for the filing season starting in 2019. It’s more than double the number of forms we would create or revise in a typical year.
The IRS collaborates with the tax professional community, industry, and tax software partners each year as we implement changes to the tax law, including the Tax Cuts and Jobs Act, to ensure that our shared customer – you, the taxpayer - has information about how the law applies to your particular situation and you are prepared to file.
Using tax preparation software is the best and simplest way to file a complete and accurate tax return. The software guides you through the process and does all the math. Electronic filing options include IRS Free File for taxpayers who qualify, Free File Fillable Forms for all taxpayers, commercial software, and professional assistance. The IRS Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) programs offer free tax help and e-file for taxpayers who qualify.
This publication covers some of the provisions of the TCJA. It provides information for you and your family to help you understand, take action - if necessary - and comply with your federal tax return filing requirements. It is not intended to replace or supersede IRS tax forms, instructions or other official guidance.
The official IRS.gov website includes a Tax Reform page that highlights what you need to know about the tax law changes. This page also provides links to news releases, publications, notices, and legal guidance related to the legislation.
The IRS continues to warn consumers to guard against scam phone calls from thieves intent on stealing their money or their identity. Criminals pose as the IRS to trick victims out of their money or personal information. Here are several tips to help you avoid being a victim of these scams:
Scammers make unsolicited calls. Thieves call taxpayers claiming to be IRS officials. They demand that the victim pay a bogus tax bill. They con the victim into sending cash, usually through a prepaid debit card or wire transfer. They may also leave “urgent” callback requests through phone “robo-calls,” or via phishing email.
Callers try to scare their victims. Many phone scams use threats to intimidate and bully a victim into paying. They may even threaten to arrest, deport or revoke the license of their victim if they don’t get the money.
Scams use caller ID spoofing. Scammers often alter caller ID to make it look like the IRS or another agency is calling. The callers use IRS titles and fake badge numbers to appear legitimate. They may use the victim’s name, address and other personal information to make the call sound official.
Cons try new tricks all the time. Some schemes provide an actual IRS address where they tell the victim to mail a receipt for the payment they make. Others use emails that contain a fake IRS document with a phone number or an email address for a reply. These scams often use official IRS letterhead in emails or regular mail that they send to their victims. They try these ploys to make the ruse look official.
Scams cost victims over $23 million. The Treasury Inspector General for Tax Administration, or TIGTA, has received reports of about 736,000 scam contacts since October 2013. Nearly 4,550 victims have collectively paid over $23 million as a result of the scam.
The IRS will not:
Call you to demand immediate payment. The IRS will not call you if you owe taxes without first sending you a bill in the mail.
Demand that you pay taxes and not allow you to question or appeal the amount you owe.
Require that you pay your taxes a certain way. For instance, require that you pay with a prepaid debit card.
Ask for your credit or debit card numbers over the phone.
Threaten to bring in police or other agencies to arrest you for not paying.
If you don’t owe taxes, or have no reason to think that you do:
Do not give out any information. Hang up immediately.
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The Paycheck Checkup campaign encourages you to review your tax situation.
The new tax law could affect how much tax someone should have their employer withhold from their paycheck. To help with this, taxpayers can use the Withholding Calculator on IRS.gov. The Withholding Calculator can help prevent employees from having too little or too much tax withheld from their paycheck. Having too little tax withheld can mean an unexpected tax bill and even a penalty at tax time. You might prefer to have less tax withheld up front and receive more in your paycheck which may mean a lower refund or an unexpected tax bill. Or, you might prefer to make estimated or additional tax payments to avoid an unexpected tax bill and possibly a penalty.
Everyone should do an annual check of their withholding but this year is even more important, especially for taxpayers who:
Belong to a two-income family.
Work two or more jobs or only work for part of the year.
Have children and claim credits such as the Child Tax Credit.
Have older dependents, including children age 17 or older.
Itemized deductions on their prior year’s tax returns.
Earn high incomes and have more complex tax returns.
Received large tax refunds or had large tax bills for the prior year.
Changes in personal circumstances can reduce withholding allowances a taxpayer is entitled to claim.
Taxpayers whose circumstances have changed, including those who have divorced, started a second job, or whose child no longer their dependent, have 10 days to submit a new Form W-4 to their employer claiming the proper number of withholding allowances. Taxpayers who work seasonal jobs or are employed part of the year should also perform a “paycheck checkup.” Any changes that a part-year employee makes to their withholding can affect each paycheck in a larger way than employees who work year-round.
THIS MEANS THAT…Doing a checkup can help protect against having too little tax withheld and facing an unexpected tax bill and even a penalty at tax time. Some taxpayers might prefer to have less tax withheld up front and receive more in their paychecks, which would reduce their tax refund next year.