As year-end preparations are sending a buzz in the air, there’s one preparation that you might be overlooking: the upcoming tax season.
We’ve written about the updated withholding tables and calculator as a reflection of the Tax Cuts and Jobs Act, but the IRS is urging a particular set of taxpayers to pay special attention.
The Tax Cuts and Jobs Act added a new tax credit: Credit for Other Dependents. Because of this, the IRS is saying those who support dependents who can’t be claimed for the Child Tax Credit should review withholding to ensure the right amount is taken out of their pay.
The Credit for Other Dependents is a non-refundable credit of up to $500 per qualifying person. You may be able to claim the new credit for dependents that you claimed a dependency exemption for in the past.
More on the Credit for Other Dependents.
This is available for dependents for whom taxpayers can’t claim the newly expanded Child Tax Credit. Dependents may include:
- Dependent children age 17 or older at the end of 2018.
- Or parents/other qualifying relatives supported by the taxpayer.
If you’re part of a family with qualifying children under the age of 17, the IRS says that you should first review your eligibility for the expanded Child Tax Credit.
Why is this so important? The IRS claims that this can prevent and unexpected tax bill and even penalties next year come tax time.
Should you be checking your withholding?
If you haven’t done what the IRS is calling a ‘paycheck checkup’ yet, it’s time. This way, if a withholding amount adjustment is necessary, you still have time to make it. The longer you wait, the fewer pay periods available to withhold the necessary federal tax.
The IRS explains that if you fall under one of these categories, it’s especially pertinent that you check your withholding (in addition to what we’ve outlined above):
- A two-income family.
- Have two or more jobs at the same time (or only work part of the year).
- Claim credits.
- Itemized deductions in 2017.
- Have high income or a complete tax return.
- Had a large refund or bill in 2017.
It’s also a good idea, if you do decide to change your withholding for 2018, that you recheck it at the start of 2019. The IRS says that a mid-year withholding change in 2018 could have a different full-year impact in 2019.
Calculate and adjust.
View our most recent tips for using the updated withholding calculator when it comes to understanding what needs to be adjusted.
You’ll learn from your results if you should complete a new Form W-4 and, if so, what information to enter on that form. If the calculator determines you’re at risk of being under-withheld, it will make recommendations on the additional amount of tax withholding.
Make sure your employees (or yourself) complete a new Form W-4 (if necessary) and return to you or your HR department as soon as possible.
These are all great reminders to share with your staff and to keep for yourself as we begin that steady climb into year-end and a fresh tax season.