When the calendar turned to 2018, we were welcomed with a new tax law. Along with this new tax law comes challenges and opportunities.
A challenge we discovered is related to IRS payroll withholding tables.
Your federal income tax withholding was automatically adjusted when the IRS provided the new withholding tables. You may have noticed less money taken out of each paycheck.
These large paychecks carry a risk that you will not withhold enough tax, which could cause you to owe tax on April 15, 2019.
This is also true if you pay estimated tax payments. Estimated tax payments are calculated on the assumption that your federal income tax withholding would align with the new tax law. Unfortunately, the IRS payroll withholding tables do not reflect the entirety of the new tax law’s changes.
For all taxpayers who have payroll withholding, you face a possibility of owing tax by April 15, 2019.
Owing tax creates two risks:
- Lack of cash available to pay the lump‐sum tax due.
- Underpayment interest penalties. If enough tax wasn’t paid in throughout the year.
Considering these risks, we recommend a review of your federal income tax withholding.
You can do this yourself using a through the IRS Website ‐ or‐
You can contact your Johnson Block advisor to calculate your potential underpayment, and receive an adjustment to your withholding or estimated tax payments, if necessary. Your advisor will provide a personalized quote.
Johnson Block and Company, Inc.