www.taxprofessionals.com - TaxProfessionals.com
Posted by Tiffany Gaskin

Why an Employee Should do a Paycheck Checkup

Why an Employee Should do a Paycheck Checkup

According to Uncle Sam, taxpayers who owe additional federal taxes should do a paycheck checkup to avoid unnecessary extra levies. The Tax Cuts and Jobs Act passage made some major changes like:

  • Raised standard deductions.

  • Removed personal exemptions.

  • Raised child tax credits. 

  • Reduced or discontinued itemized deductions.

  • Extra credits for dependents.

  • Updated tax rates and brackets.

The changes have a deep impact on the tax refund or balance. The Internal Revenue Service urges taxpayers to do the checkup to ensure their filing and deductions are accurate. Verifying your status will save you unprecedented tax bills and penalties the following year.   

What changed with the 2020 W-4?

The TCJA changes many things and impacts federal tax withholding. First, the act brought an update that affected many taxpayers' returns, as listed above. In addition, the change affected the IRS withholding tables, and new W-4 numbers have been revised and released on the tax law. The changes took effect on Dec 4, when the final list of 2020 W-4 was released.

What does 2020 W-4 mean for employees?

However, taxpayers are not mandated to file a new W-4 but are advised to review their withholdings to decide if it is necessary to submit a new W-4 for the tax year. Reviewing your withholding will be beneficial if you

  • And your partner receives income.

  • Juggle between two or more jobs.

  • Have a part-time or seasonal job.

  • Have dependents above 17 years.

  • Receive credits like the Child Tax Credit.

  • Receive high-income or complex tax returns.

  • Receive high tax refund 

  • They are a two-income family.

Employees are expected to check and adjust the status as soon as possible. These changes avoid unexpected tax bills or penalties for the coming tax year. However, employees with significant tax withholding can smuggle money by changing their withholding and adding it to allowances. You can make the process easy using the Withholding Calculator or Publication 505. But to use these tools.

  • A taxpayer must have reported their previous year's tax and have it in hand combined with their recent pay stubs to compare and estimate the income, deduction, credits, and adjustments for the present tax year. Your result depends on the information provided. 

  • The result from the Withholding Calculator or Publication 505 helps decide whether to file a new W-4 or the Employee's Withholding Allowance Certificate and the needed information on the form.

  • Those under pension or annuity income can also use the calculator to adjust their withholding through Form W-2P with their payer.

  • However, you're expected to revisit your withholding if there are any tax changes during the year.

How to adjust withholding

  • The employee should file a Form W-4 with the employer.

  • They can also update the W-4 electronically or online.

  • Taxpayers that changed their withholding status last year should revisit it this year because changes made during the year impact the following tax years differently. In other words, if a taxpayer failed to check their withholding last year, their withholding this year may be higher or lower than expected.

  • An employee must file a new W-4 if a change affects the allowance reported on the form. The change must be done within a 10-day window. 

  • A taxpayer gets more tax withholding by filing fewer withholding allowances. For example, filing 0 or 1 on the allowance will get you higher withholding, while a larger number gets lower withholding. The allowance is entered on Line 5 of Form W-4.   

Less stress is best

Every taxpayer knows the stress and trick of filing taxes. By checking your paycheck on time, you'll avoid unnecessary penalties and headaches that come with faulty tax returns. In addition, preparing your taxes will be easier if you avoid this issue, and you'll have time to focus on other matters.



Tiffany Gaskin
Contact Member