Do you need to adjust your withholding up or down?
If you work for someone as an employee and also have income from other sources, the IRS urges everyone to perform a "paycheck checkup" now. This includes taxpayers who have certain types of income from interest, dividends, self-employment, capital gains, or prizes and awards.They may need to pay estimated or additional tax. A "paycheck checkup" can help these taxpayers avoid an unexpected year-end tax bill and possibly a penalty when they file their 2018 tax return next year.
To do a checkup, go to the IRS’s Withholding Calculator on their website. This is especially important in 2018 because of tax changes taking effect this year from the Tax Cuts and Jobs Act.
Here are some things for employees with other sources of income to consider:
Taxpayers usually must pay at least 90 percent of the tax they owe during the year through withholding, estimated tax payments or a combination of the two. An estimated tax penalty will normally apply to a taxpayer who pays too little tax.
Taxpayers can use their results from the calculator to help fill out their Form W-4 and adjust their income tax withholding. Taxpayers should submit their new W-4 to their employer as soon as possible.
Many employees who also receive income from other sources may be able to forgo making estimated tax payments. They can instead increase the amount of income tax withheld from the paychecks they earn as an employee by claiming fewer withholding allowances on their Form W-4 or by using the Form W-4 to ask their employer to withhold an additional flat-dollar amount each pay period.
Disclaimer: The items included in the Tax Tip Tuesday Video Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation. IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.