On February 27, 2018, the IRS finally released the updated W-4 for 2018 with many notable changes from previous versions of the form. Most noticeably, the exemption calculation has been moved to a separate page on the form so that the employee can keep it for their records rather than turning it in to their employer. In its place is a longer description and instruction section of what the W-4 form does and how to fill it out accurately.
The hope with this change is that individuals will be more inclined to read through before completing the form, ensuring that is being done correctly. Many have been taught to enter 0, 1, or 2 as their allowances and submit the form. However, because of the changes for 2018, it is much more crucial that individuals take the time to fill the form out accurately.
The W-4 gives employees the opportunity to briefly review their tax position for the year to ensure that the correct tax is withheld from their checks and prevent any surprises when filing their taxes at the end of the year. In 2018 there will be several deductions that will no longer be allowed and can end up increasing the tax liability of individuals.
The updated W-4 for 2018 can help remedy having an unexpected tax bill by making sure the correct federal income tax is withheld. This is especially important for individuals earning income from more than one employer, not only because having more than one income source can often time increase tax liabilities, but because the thresholds used for the two-earner calculation have changed for 2018. Federal income tax withheld is calculated based on the frequency of pay, allowances claimed, tax filing status, and the amount of wages themselves.
Ideally, employees are paid a consistent amount on a consistent basis so the tax calculated is as accurate as possible. However, this is not always the case, especially for those with more than one job. For this reason, the W-4 also has a section to have an amount withheld in addition to the amount calculated.
With the various changes to the tax code, withholding tax table, and tax filings, it is important to stay up to date as they are published. Tax planning can be instrumental in getting ahead of your tax liability, and having a correctly filed W-4 is a great start. For help with your specific situation, whether as an employer or an individual, contact us today to get ahead of your 2018 tax preparation.