You may recall that under the Tax Cuts and Jobs Act of 2017 (TCJA), substantial changes were made to the personal income tax provisions and withholding tables. These changes resulted in many employees having less federal income tax withheld from their paychecks during the year. As a result, some were surprised at the end of the year when their refunds were significantly lower, or they owed more than expected.
To help combat this challenge, in IR-2019-139, the IRS recently announced its release of a new Tax Withholding Estimator to assist employees in confirming that the information on their Form W-4 will result in federal income tax withholding that more closely approximates the federal income tax they will owe for the year. The tool can be accessed at: https://www.irs.gov/paycheck-checkup.
As opposed to the previous IRS withholding tax calculator, this mobile-friendly tool automatically determines how the Form W-4 should be completed based on the information provided by the user. The new Tax Withholding Estimator tool is built to work with the revised Form W-4 that the IRS intends to release in 2020 and includes a link to download the Form W-4 for completion and submission to the employer.
The IRS urges everyone to review their withholding for 2019, particularly if they faced an unexpected tax bill or a penalty when they filed for tax year 2018, made income tax withholding adjustments in 2018 or experienced a major life change. It is also important to note that this tool should only be used if your primary source of income is through an employee W-2. If you are self-employed or have significant other income outside of your job through investments, the tool will not be beneficial.
Employers should ensure employees are aware about the new Tax Withholding Estimator and encourage them to check their withholding as soon as possible. At The Bonadio Group, we’re always happy to answer any questions you have related to federal tax withholdings. Don’t hesitate to reach out and schedule a call today.