A paycheck checkup is an assessment of your paycheck to ensure the proper amount is being withheld per your personal situation. By performing a paycheck checkup, you can prevent paying too much or too little on your taxes and avoid a penalty or an unexpected tax bill. A paycheck checkup is especially important if your refund could be impacted by changes or adjustments from the Tax Cuts and Jobs Act (TCJA).
So, who should do a paycheck checkup? Everyone! But there are a few taxpayers who may be at greater risk and should be sure to do a paycheck checkup before tax season.
- Parents who claim the Child Tax Credit.
- Taxpayers who usually itemized deductions before the new tax reform went into effect.
- Those who received a large refund or paid a large tax bill before the Tax Cuts and Jobs Act (TCJA).
- Two-income families.
- Workers who held two or more jobs during the year.
- Self-employed or gig economy workers.
Complicated Tax Situations
Taxpayers in the following categories may be especially vulnerable to tax adjustments when tax laws change. Changes that could impact your tax situation include an increased standard deduction, increased Child Tax Credit, eliminated personal exemptions, changed tax brackets and rates and limited or discontinued deductions.
1. Two-Income Families and Workers With Multiple Jobs
Specifically, two-income families and people with multiple jobs may be more vulnerable to being under- or over-withheld following the tax law changes. Do a paycheck checkup as soon as possible to determine whether the correct amount of tax is withheld.
If you need to make an adjustment to your withholding amount, it’s best to get this done as early as you can. The longer you wait, the greater the impact could be on your taxes. At Polston Tax, we can help you navigate the complexities of having multiple employers and determine the proper amount of tax your employers should be withholding from your paychecks.
2. Parents Who Claim the Child Tax Credit
If you have children and claim the Child Tax Credit, your tax refund may be much larger due to the new Tax Cuts and Jobs Act (TCJA). If in the past you found that your income was too high to receive any benefits from the Child Tax Credit, you may now qualify. However, if you’re earning more money, you may have hit phase-out limits. Either way, you may need to adjust withholding so you don’t have a big bill, or excessive refund when you file.
3. Taxpayers Who Usually Itemize Deductions
If you itemized deductions, you may not be paying enough in taxes through withholding, as the TCJA limits some popular tax deductions you used to claim. If too little tax is withheld from your paycheck, you could face an unexpected tax bill, or worse, a tax penalty after you file your next income tax return. During the paycheck checkup, you’ll adjust your tax withholding to stretch the extra amount you will owe over your remaining paychecks this year.
In fact, many people who itemized in the past may not need to anymore, radically changing their tax situation.
4. Self-Employed or Gig Economy Workers
Whether you’re a business owner or a freelancer, if you’re self-employed and pay quarterly estimated tax payments, you may need to raise or lower the amount of tax you pay each quarter. Though being self-employed can come with special tax write-offs, it also comes with a lot of responsibility for controlling finances and staying compliant with the IRS.
Being self-employed means you file your taxes annually and pay estimated taxes each quarter. Figuring out self-employment tax, income tax, Social Security tax and Medicare tax can be complicated. Reaching out to us at Polston Tax and letting us handle your taxes can simplify the process for you and ensure everything’s handled correctly.
5. Taxpayers With a Significant Life Change
Any life change — getting married or divorced, buying or selling a home, or having a baby — should make you consider doing a paycheck checkup. For example, if you sold a property, the IRS may issue a withholding certificate that adjusts your withholding amount and may reduce your withholding based on the sale’s gain rather than the selling price. The TCJA limited some popular home-related deductions, so be sure you budget for that.
Contact the Tax Advisors at Polston Tax
The mismatch between what you’re having withheld from your pay and what you might owe on your next tax return could be significant. You may be overpaying the IRS. If you want your withholding to be more closely aligned with your expected tax owed, you need to file a new Form W-4 with the Single box checked, along with increased allowances.
At Polston Tax, our team of more than 100 attorneys, accountants, CPAs, financial analysts, tax professionals and case managers can provide the tax help and services you need. We’ll handle each step for you, from tax planning to filing the necessary forms. If you’re concerned about your paycheck withholding, your best bet is to keep in touch with us at Polston Tax to plan for tax season.