Owing Uncle Sam or sending him interest free money throughout the year is something that you want to avoid. Due to the 2018 Tax Reform you need to know what changes will affect your tax bill. Your first step should be to perform a paycheck checkup. If any of the items listed below apply to you, then we strongly urge you to review your withholdings to avoid any surprises on April 15th.
Get a Paycheck Checkup
You should perform a paycheck checkup if you
- Have dependents 17 years of age or older.
- Received a large tax refund or tax bill for 2017.
- Will file a joint tax return with your spouse who also earns income.
- Itemized deductions in 2017.
- Have two or more jobs at the same time or only work part of the year.
- Are a high wage earner or have a complex tax return.
- Claim credits like the child tax credit.
You may want to file a new Form W-4 if you itemized your deductions in 2017. Although the standard deduction increased under the 2018 Tax Reform, itemized deductions were significantly reduced and some altogether eliminated. Two of the most impactful changes related to itemized deductions were the reduction of state and local income tax deductions (SALT taxes) and the elimination of job-related expense deduction on Schedule A.
|Single or Married Filing Separately||$6,350||$12,000|
|Married Filing Jointly or Qualifying Widow(er)||$12,700||$24,000|
|Head of Household||$9,350||$18,000|
Under the 2018 Tax Reform, state and local income taxes, including property taxes are capped at $10,000 ($5,000 if married filing separately). If you’re a resident of a state with high property taxes such as California, Hawaii, Oregon, Minnesota, Iowa, New Jersey, Vermont, District of Columbia, New York and Wisconsin, a paycheck check-up may be warranted. Increasing income tax withholding can help offset the increase in tax resulting from the SALT limitation.
Job-related expenses or other miscellaneous itemized deductions that exceed 2 percent of your adjusted gross income were eliminated under the new 2018 Tax Reform. Occupations impacted by this change include teachers who pay for their own classroom supplies, nurses who purchase their own scrubs and employed salespeople who travel for work. If you have job-related expenses, contact your employer about adopting an accountable expense reimbursement plan that complies with IRS regulations.
Child Tax Credit and Additional Child Tax Credit
The maximum child credit has been increased in 2018 to $2,000 per qualifying child. The maximum additional child credit has been increased to $1,400. If your dependent does not qualify for the child tax credit, a new credit is available for $500. The capped amount at which this credit phases out has been increased to $200,000 ($400,000 if married filing jointly).
The 2018 Tax Reform comes with many tax law changes leaving many taxpayers confused and to their own devices. Hire a tax professional to help you tackle the new tax laws to learn how it impacts you. Do not wait until April 15th to contact a CPA. If you do not have a trusted professional, contact us today and we will help you navigate through the tax law changes.