IRS Form W-4
How Many Allowances to Claim?
2017 Tax Cuts & Jobs Act
Impacts Federal Tax Withholdings
Beginning in 2018, many taxpayers are concerned that they may be having their federal income taxes over-withheld as a result of the 2017 Tax Cuts and Jobs Act (TCJA) which reduced income tax rates and increased the standard deduction.
The trick with estimated taxes is to pay a sufficient amount of estimated tax to avoid a penalty, but not to overpay. That’s because while the IRS will refund the overpayment when you file your return, it won’t pay you interest on it. If you receive a substantial refund from the IRS, that is comparable to giving the IRS an interest-free loan. That obviously is not good financial planning.
Due to the significant changes made by the TCJA, the IRS has updated its Tax Withholding Calculator to better enable taxpayers to compute the proper amount of taxes to withhold from their paychecks. If you are a wage earner (W-2 employee), you should consider using the IRS’s Tax Withholding Calculator to determine if your federal income tax withholdings are sufficient to avoid substantially over-withholding your taxes, and also to avoid under withholding issues which may be subject to underpayment penalties.
With respect to under withholding, keep in mind that the IRS wants to collect the taxes due it as early as possible during the year. Taxpayers who underpay income taxes during the tax year and pay the balance due on April 15 (or later) may find themselves subject to a penalty in the form of interest on the amount underpaid.
To avoid underpaying taxes during the year, [Read more…] about IRS Form W-4 – How Many Allowances to Claim?