Withholding is the term used to describe the amount of federal, state and local income tax that is taken out – or withheld – from your paycheck. As we move into 2019, it is more important than ever to check your payroll tax withholding to make sure that the right amount of tax is being deducted from your paycheck. That is because in December of 2017, sweeping changes were made to the Internal Revenue Code of 1986, under the Tax Cuts and Jobs Act (TCJA). The TCJA altered the rate of taxation and instituted other tax changes for individuals and businesses that were effective starting in January 2018.
What are some payroll tax issues to be aware of?
Many people got bigger paychecks in early 2018 because less tax was withheld from their pay. According to the Internal Revenue Service (IRS) this was because the updated federal tax withholding tables reflected the lower tax rates and the increased standard deduction brought about by the new law. However, the IRS acknowledges that the withholding tables couldn’t fully factor in other changes such as the suspension of dependency exemptions and reduced itemized deductions.1 For this reason, when some people file their taxes for 2018, they will find that they owe the IRS money. The converse is also true. The IRS noted that the average refund is about $2,800, so you may want to check your withholding to make sure you aren’t having too much taken out of each paycheck.2
On January 16, 2019, the IRS announced that it is waiving the estimated tax penalty for any taxpayer who paid at least 85 percent of their total tax liability during 2018. “We realize there were many changes that affected people last year, and this penalty waiver will help taxpayers who inadvertently didn’t have enough tax withheld,” said IRS Commissioner Chuck Rettig.3
The IRS is urging every taxpayer to look closely at their withholding to make sure it is correct and that neither too little or too much is being taken out of their paycheck for taxes. They have even provided taxpayers with an easy to use Paycheck Checkup Tool which is available by going to https://www.irs.gov/paycheck-checkup.4 All you will need is your most recent pay stub and your most recent income tax return. The Checkup Tool will help you determine whether you need to give your employer a new Form W-4, Employee’s Withholding Allowance Certificate. If you receive a pension, annuity or certain other deferred compensation and determine that your withholding is not correct, you should submit a Form W-4P to whomever provides your payment.
There are several situation that can occur which make it more likely that your withholding will not be correct for 2018 and 2019. According to the IRS these include:
•If you are a two-income family or someone with multiple jobs;
•If you work a seasonal job or only work part of the year;
•If you claim the child tax credit;
•If you have dependents that are age 17 or older;
•If you itemized your deductions in previous tax years;
•If you have high income or a complex tax return;
•If you had a large tax refund last year; and
•If you had a tax bill last year.5
Do not delay resolving your payroll tax problem! Failure to report payroll taxes will lead to an IRS audit and severe penalties. Tax penalties include; failure to file, non-payment, failure to deposit, and failure to pay. Our Tax Resolution Attorneys are experienced in all cases involving tax resolution, tax dispute, and general issues relating to IRS tax and debt relief. The lawyers at our law firm, are extremely knowledgeable in the local, state, and federal tax code, and can help you today! If you have an IRS tax dispute do not hesitate to contact us immediately. We are here to help!
1, 3 IRS Waives Penalty for Many Whose Tax Withholding and Estimated Tax Payments Fell Short in 2018, www.irs.gov, IR-2019-03, January 16, 2019
2 IRS Withholding Calculator, www.irs.gov
4, 5 Everyone Should Check Their Withholding, www.irs.gov