Beware Larger Tax Bill - Check Your Income Tax Withholding!

Last month, the IRS updated Publication 1281, Backup Withholding for Missing and Incorrect Name/TIN(s), to reflect a key change made by the Tax Cuts and Jobs Act (TCJA). As a result of this change, effective Jan. 1, 2018, the backup withholding tax rate dropped from 28 percent to 24 percent.

Backup withholding applies in different situations such as when a taxpayer fails to supply their correct Taxpayer Identification Number to a payer, such as an employer. Typically, the TIN is the same as the taxpayer’s Social Security number, but in some cases, it can be an Employer Identification Number, Individual Taxpayer Identification Number or Adoption Taxpayer Identification Number. The IRS may also require backup withholding to be applied when a taxpayer has underreported their interest or dividend income on their tax return.

The IRS recommends taking the following action:

1. Visit the IRS Withholding Calculator on IRS.gov to perform a “paycheck check-up.”
2. Check your status regarding the following items:
   • the increased standard deduction
   • the elimination of personal exemptions
   • the increased child tax credit
   • other limited or discontinued deductions
   • changed tax rates and brackets
3. If your withholding needs to be adjusted, submit a new Form W-4 to your employer.
4. Take time to review your state and local tax situation because the new federal tax law could impact those as well.

If your tax situation is complex or you have questions about your particular situation, we advise that you speak with your tax advisor before making any adjustments.