With the arrival of the recent tax law, how much you owe Uncle Sam will likely be changing this year. Not only are the tax brackets lower for 2018, but the standard deduction has doubled, many previous deductions and exemptions have changed or fallen by the wayside, and new credits are now available.
One of the first decisions you’ll want to make? Whether to change how much you should withhold in taxes from your paycheck, as determined by your W-4 form. The IRS recently updated the W-4 to reflect the 2018 tax changes, and unveiled a new online withholding calculator to help you determine whether you’ll need to change your withholdings and submit a new form to your company. It uses information like your filing status, your wages, the number of kids you have, and what kind of tax credits you might be eligible for to help you make that determination.
So why is this important to check now? If you’re paying too much in taxes, you’re essentially giving the government more of your money than you need to throughout the year. Getting a refund is great, but could you have been saving or investing that money instead to get closer to one of your money goals? On the flip side, if you don’t take out enough in taxes, you may end up paying penalties to the IRS, on top of whatever additional amount you might owe, according to Ken Elbert, an advanced planning attorney with Northwestern Mutual. “Getting more money in your paycheck as a result of the tax-law changes could be a false comfort,” Elbert says. “You may end up owing. That’s why it’s important to see if your withholding numbers are correct.”
This article is not intended as legal or tax advice. Northwestern Mutual and its financial representatives do not give legal or tax advice. Taxpayers should seek advice regarding their particular circumstances from an independent legal, accounting or tax adviser.