2018 Tax cuts and Withholdings

If you are employed, you probably noticed that your net paycheck went up recently due to changes in the IRS tax withholdings tables. This is the result of the 2018 tax cuts that went into effect in January. A lot has changed under the new rules. 

You might want to take a look at your W-4 to make sure you are withholding enough, especially if you typically itemized your deductions in past years. This is especially true in higher tax states, like New York, where state and local taxes (SALT) are high. The new rules limit the SALT deduction to $10,000. In addition, home equity line of credit interest is no longer deductible. The standard deduction has been raised to $12,000 for an individual and $24,000 for a married couple. The combination of these changes make it likely that many people who itemized in the past will no longer be able to.

There are several ways to get ahead of this so that you are not surprised if you owe money next spring. Journalist Maxim Lott created a straightforward and extremely easy to use calculator where you select your state and fill in a few blanks. It gives you an expected annual tax due figure. Compare that figure to the annualized amount you are having withheld to see where you stand and make adjustments accordingly.

If you would like to dig deeper than the Lott site, check out the IRS calculator. Here you will be able to get very detailed results. It will take a bit more time because there are more data inputs, but it will tell you what your expected amount owed/refund will be and make suggestions on changing the W-4 as needed. I recommend running any potential changes by your accountant to make sure he/she is on board.