If you receive a paycheck, you have probably noticed an increase in take home pay this year. No, it's not from an unexpected raise, but rather a decrease in the amount of income tax withheld. The Tax Cuts and Jobs Act (TCJA) made sweeping changes to the tax law, not the least of which is new lower income tax withholding rates. But before you go out and spend all of that extra money, keep in mind that withholding only represents the amount of tax paid to the IRS on your behalf, not necessarily the amount you owe.
The new law increased the standard deduction, removed personal exemptions, increased the child tax credit, limited or discounted certain deductions, and changed the tax rates and brackets. While most people have seen lower withholdings, not everyone will see a corresponding reduction of tax owed, particularly if you are in one of these groups:
- Two-income families
- People working two or more jobs, or who only work for part of the year
- People with children who claim credits such as the Child Tax Credit
- People with older dependents, including children age 17 or older
- People who itemized deductions in 2017
- People with high incomes and more complex tax returns
- People who receive stock options or bonus income
While it is always good practice for everyone to do an annual withholding check-up, this year is especially important.
If you have questions about how the TJCA might impact your withholdings and tax liability, please leave a comment below, or feel free to contact me directly - I'm happy to help!