Who should be checking in?
Ideally, everyone should give their withholding a onceover at regular intervals, and especially when major life events occur — such as a marriage, divorce or gaining a new dependent. But given the changes in the new tax law, everyone should probably run the numbers to make sure they're paying the right amount of taxes.
For more straightforward tax filing situations — meaning singles and married couples with only one job, who have no dependents and who don't itemize or claim tax credits — withholding is probably going to stay about the same.
Others have more complicated taxes, and the following people should probably take a closer look at their withholding plans:
- Two-income families
- People working two or more jobs, or those who work for just part of the year
- People with children who claim credits, such as the child tax credit
- People with older dependents, such as children age 17 or older
- People who itemized deductions in 2017
- People with high incomes and more complicated tax returns
- People with big tax refunds or large tax bills for 2017
Why does it matter?
Among other things, the new tax legislation raised the standard deduction and the child tax credit, nixed personal exemptions, limited or dropped some deductions, and altered tax rates and brackets. In short, a lot has changed, and if you're not getting enough tax withheld from your paycheck, you could be in for a nasty tax bill next April.
On the other hand, you may be getting too much taken out now, which means you're just giving the IRS an interest-free loan. (The average 2017 refund was nearly $2,800 Opens in a new window, according to the IRS — wouldn't you rather have that in your wallet?) The closer you can get to the correct withdrawal of taxes, the more streamlined your finances will be.
How to get it done
The easiest way to determine whether you need to submit a new W-4 PDF Opens in a new window — the form that sets your withholding allowances with your employer — is to plug your information into the IRS' withholding calculator Opens in a new window.
If the calculator's results suggest you need to tweak your withholding, you'll need to submit a new W-4 to your employer with the correct number of withholding allowances. You'll want to consider doing this every time your circumstances change. Some examples: You get a second job, your spouse changes jobs, you're jobless for part of the year, you get married, divorced, or have or adopt a baby.