You may be wondering how your taxes will be affected next year due to the new tax laws that are now on the books. Will you get more money back or will you end up owing more?
The only way to know for sure is to use the withholding calculator from the IRS. You can find this at IRS.gov/withholding. It will walk you through the entire process and help you determine how many personal allowances to claim.
If the withholding calculator suggests you need to either increase or decrease your current withholdings, you will need to fill out and submit a new W-4 form to your employer to ensure you are having the proper amount deducted from your pay. You can download a W-4 form from IRS.gov/W4.
When filling out the form, first complete the top section with your personal information. Then on Line 5, put the allowances suggested by the calculator. If for any reason you need to withhold more taxes, you can add that amount on Line 6. Only use Line 7 if you qualify to claim a total exemption from withholding. Once you have completed this form, sign and date it and then return it to your employer.
Keep in mind that the fewer allowances you claim on your W-4 means that more money will be withheld from your paycheck. For example, entering 0 or 1 will withhold more money than entering 5 or 6. If you enter too high a number, you will reduce your tax refund, or even worse, end up owing at tax time.
The earlier you check your tax withholdings, the more time your money can be evenly withheld throughout the year. If you wait too long in a given year, there are fewer paychecks left to make up the difference in the withholding changes, potentially having a significant impact on your remaining paychecks in that tax year.