You need to do some math on your new paycheck
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[February 06, 2018]
By Beth Pinsker
NEW YORK (Reuters) - When I received my
first paycheck reflecting the new tax law, I was worried.
I hate to owe money to the IRS at the end of the year and have always
adjusted my W-4 tax withholding form to take out enough to ensure a
small refund at year's end.
The amount withheld from my check for federal income tax seemed too low
to cover my whole tax burden for 2018, given that usually itemize my
deductions beyond the new higher standard deduction - even if I would
get a bigger tax credit for my two kids.
The Tax Policy Center calculates that the new tax law will, on average,
result in a cut of about $1,200 per family this year, but what I have
learned covering personal finance is that there is really no average
person when it comes to taxes. Everyone's situation is different.

Many Americans might not know how to assess whether the amount of
withholding from paychecks is correct, which is why I looked for expert
help. I took my questions to Leon LaBrecque, a certified financial
planner who is also a tax attorney, a certified public accountant and a
chartered financial analyst in Troy, Michigan. To figure out if anyone's
withholding is correct, LaBrecque looks deep into the paystub and also
considers past tax liability. He did this with employees in his office
to make sure their new withholdings were correct - most were.
It turns out my withholding drop was due mostly to my filing status. As
a divorced mom of two, I file as head of household, which falls between
single and married in taxdom. There is no withholding formula for that
status, which about 22 million American households use, and filing as a
single person leads to too much withholding but joint filing status
takes too little.
I was withholding as married, with two allowances. That filing status
made things complicated, but the married numbers were closer to what
LaBrecque thought my 2018 bill would be than listing as single.
By contrast, Heather Baer, a 39-year-old teacher in Massachusetts, saw a
bigger amount withheld from her check, making her take-home pay drop.
This is because she files head of household as a divorced mom with two
kids but was listed as single on her W-4 form.
"I am flabbergasted," said Baer, who after investigating her options
thinks she will now switch her withholding to married.

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Crates filled with 2011 tax forms are seen at the 96th Street Public
Library in New York April 17, 2012. REUTERS/Shannon Stapleton

Among others who might have special concerns about whether their new withholding
is correct are around 5 million taxpayers who owed Alternative Minimum Tax (AMT)
in the past, people whose total itemizations exceed the new standard deduction
of $12,000 for individuals, those with many children and, really, anyone who
adjusted their W-4 previously to change the amount of money taken out of their
checks.
Bruce Steiner, a 67-year-old attorney in Manhattan, is one of them. He
previously had to pay AMT, an additional tax imposed on high earners on top of
regular tax. Steiner adjusted his withholding to take out extra each month - and
then usually owed a big check at the end of the year any way.
The new tax law preserves the AMT, but changes the income qualifications, so
Steiner thinks he will no longer have to pay it. At the first opportunity, he
changed his W-4 form to wipe out the extra amount.
The IRS is planning to update the W-4 form by spring, and services like TurboTax
plan to offer online calculators to help taxpayers estimate.
For those who do not want to do math or worry about a hulking tax bill, the
smart thing to do is save any increase in your pay, suggested Kelley Long, a
Chicago-based financial planner and CPA with an expertise in personal finance.
That is how Jessica Krakoski, a 34-year-old public relations executive in
Austin, Texas, is approaching it. When she got her first paycheck with increased
pay, she did limited math.

"I just calculated how much it would be per month," Krakoski said. The extra
$200 she will receive is now set to go automatically into her savings account.
Krakoski tax situation will change again soon, though, as she is expecting her
first baby in the summer. Any shortfall she has will probably be made up with a
$2,000 child credit.
(The story is refiled to correct typographical error in headline to 'do' instead
of 'so'.)
(Editing by Lauren Young and Steve Orlofsky)
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