Anytime you start a new job, you submit a W-4 form to your employer. This form details the number of allowances you elect, which in turn impacts how much money is taken out of each paycheck to go towards your income taxes. As we discussed in a previous post, if you claim more allowances, you’ll receive more money each pay day—but you could end up with a high tax bill on Tax Day. If you claim fewer allowances, your paycheck will be a bit smaller—but you’ll be more likely to get a refund on Tax Day.
For many of us, the number of allowances we claim has remained constant for many years. We may not give it much thought. However, the Tax Cuts and Jobs Act (TCJA)—which was passed at the end of 2017—has changed the tax landscape dramatically. This law could affect many aspects of your tax situation, including:
- Your tax rate and bracket
- The standard deduction as well as certain other deductions
- Your personal exemptions
- The child tax credit
- Tax credits for dependents who aren’t children
In light of these significant tax changes, the IRS is encouraging all taxpayers to verify that the amount of withholding they have claimed is the most beneficial for their current tax situation. Taxpayers can use the online withholding calculator tool to see how the TCJA has impacted their tax situation—and whether changing their withholding may be advantageous. Taxpayers who opt to change the amount withheld from their paychecks can submit a new W-4 form to their employer.