Check your paycheck — you might be getting too much money

With the new tax law comes a home assignment.

Remember that small form you filled when you got your current job? It’s IRS Form W-4. This is the form that your employer uses to withhold federal income tax from your pay.

As a wage earner, you are required to pay federal income tax by having it withheld from your paycheck throughout the year. This is your “withholding,” which you calculate based on the number of allowances you claim on your W-4. If your tax situation changes — you have a child, get married or purchase a home — you should fill out a new form, because it could impact your tax situation. The goal is to have your withholding match your actual tax liability.

Well, with a new tax law in the land, you might need to do some calculations to see if you’re withholdings are correct. I know. You’re preoccupied with gathering the documents for your 2017 tax return. But this is exactly the right time to also focus on your 2018 return. To get the withholding right, you’ll need information from your current pay stub and your 2017 tax return.

In an ideal world, you don’t want to owe the federal government taxes, but neither should you aim to get a large refund. To hit the sweet spot — no taxes owed and maybe a small refund — you need to focus on your W-4. Otherwise, with the new tax changes hitting this year, you may find your employer is withholding too much money or not enough. In the latter case, do you really want to find out when you file your 2018 return next year that you’ve got a big tax bill?

“We suggest that people look at their withholdings every year, but most don’t,” said IRS spokesman Eric Smith. “But if ever there was a year to look at your withholdings, this is the year. Your current return is a roadmap of your tax situation.”

Under the Tax Cuts and Jobs Act, there are now seven new income tax brackets: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 37 percent. Standard deductions have increased. For individuals and married couples filing separately, deductions increased from $6,350 to $12,000. The deductions for heads of household went from $9,350 to $18,000, and for married couples filing jointly, it went from $12,700 to $24,000.

“It’s important to adjust your W-4 for any over- or under-withholding to get closer to the break-even point,” said Eric Bronnenkant, head of taxes for the online financial adviser Betterment.

Your goal should not be to get a fat check from the federal government year after year. If you do, you’ll just be letting Uncle Sam hold your money interest-free. Surely you can do a better job of putting that cash to good use. Got debt? That’s one place to start.

The IRS has released the income-tax withholding tables for 2018, which take into account changes made by the tax-reform legislation. The agency has asked employers to put the new tables into effect by Feb. 15. When you’ll see a change in your pay depends on when your employer starts using the new tables and how often you get paid.

Typically, I would send you over to irs.gov to use the agency’s online withholding calculator to make adjustments to your W-4. But it’s not available, because it’s being updated. You can adjust your withholding by using the worksheet on the W-4, which helps you figure out how many personal allowances to take, based on what tax deductions or credits you expect to claim. But the 2018 W-4 is also not available yet.

The calculator and new W-4 will likely be out by the end of February, Smith said. Ideally, an employee should wait for the new calculator and W-4. But if someone is starting a new job and needs to figure out how to adjust his or her existing W-4, use the old worksheet for now, he said. You can always change it.

Or use the withholding calculators put online by Turbo Tax, H&R Block and other tax-preparation companies. In any case, you’ll need your most recent pay stub and a copy of your 2017 tax return. Once you’ve answered a series of questions — much easier to understand than the paper worksheet — the calculators suggests a number of allowances you should put down on your W-4.

If you think you might owe taxes, you don’t want to wait too long to redo your W-4. “The longer you wait, the shorter time you have to adjust your withholdings to make sure enough taxes are taken out,” Bronnenkant said.

— Washington Post Writers Group

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