IRS Withholding Calculator

The IRS has released its new withholding calculator, but tax professionals have likely already been using the withholding calculators available in their payroll and tax preparation software to estimate the withholding expected for clients during 2018.

As discussed in an earlier post, it is essential for practitioners to project the 2018 tax liability for their clients using the new provisions and rates from the tax law that was enacted on December 22, 2017.  Most tax preparation software offers this functionality.

Once the practitioner estimates the client’s 2018 tax liability, the practitioner can compare it to the client’s expected 2018 withholding.  The new federal withholding tables for the 2018 tax year typically result in a reduction of federal withholding for taxpayers when compared to the tables for the 2017 tax year.

If the reduction in withholding from the new tables will leave a client with withholding that does not cover his or her expected tax liability, the client may need to increase the federal withholding by submitting a Form W-4, Employee’s Withholding Allowance Certificate, with a revised number of allowances.  Clients may also need to adjust the amount of estimated tax payments scheduled for the 2018 tax year.

By checking their 2018 withholding now, practitioners can help clients to avoid unpleasant surprises next year, when they file their 2018 income tax returns.