In January, the IRS released new withholding tables for employers to begin using by the end of Feb 28. These new tables will take into account the new tax rates under the Tax Cuts & Jobs Act (“TCJA”) and will reduce the amount of tax withheld from your paycheck in most circumstances. However, your W-4 on file with your employer determines how many allowances are used as part of the withholding calculation and how much additional tax you elected to have withheld. Those allowances reflect a combination of your expected deductions that exceed the standard deduction (if you itemize), the number of members of your family (exemptions), the impact of multiple earners filing jointly (marriage penalty), and the impact of certain credits based on your total expected income and family size. Because the rules for many of those items have changed under the TCJA, it is very possible that the number of allowances that you are claiming is no longer correct, meaning that the withholding calculations will not be accurate.

The IRS is revising the W-4 form and their online withholding calculators to reflect the changes, but they’re not expected to complete that task for at least a few more weeks. Until then, once your employer starts using the new withholding tables, you should be aware that too little (or in some cases) too much tax will be withheld. This will accrue a refund or an amount owed in April 2019 when you file for 2018, which may result in a higher or lower refund or amount owed than you are used to seeing. Assuming the new W-4 is released by the time your 2017 taxes being prepared, you should work through the new withholding settings and file a new W-4 with your employer at that time. A month or two of inaccurate withholding will result in a smaller impact on your April 2019 tax refund / amount owed than multiple months will. I will be initiating this conversation with financial advising clients for whom I prepare taxes. If you’re preparing your taxes on your own or through another preparer, make sure to consider a W-4 revision if appropriate. Contact your financial advisor if you’re not sure what to do.