WASHINGTON — The Internal Revenue Service today reminded small businesses that recent tax reform legislation lowered the backup withholding tax rate to 24 percent and the withholding rate that usually applies to bonuses and other supplemental wages to 22 percent. The agency also urged employers to encourage their employees to check their withholding using the IRS Withholding Calculator. [Read more…]
During National Small Business Week, the IRS focuses on educating employers about the employer credit for paid family and medical leave created by the Tax Cuts and Jobs Act passed last year. Employers may claim the credit based on wages paid to qualifying employees while they are on family and medical leave.
Here are some facts about this credit and how it benefits employers:
- To claim the credit, employers must have a written policy that meets certain requirements:
- Employers must provide at least two weeks of paid family and medical leave annually to all qualifying employees who work full time. This can be prorated for employees who work part time.
- The paid leave must be not less than 50 percent of the wages normally paid to the employee.
- A qualifying employee is any employee who:
- Has been employed for one year or more.
- For the preceding year, had compensation that did not exceed a certain amount. For 2018, the employee must not have earned more than $72,000 in 2017.
- For purposes of this credit, “family and medical leave” is leave for one or more of the following reasons:
- Birth of an employee’s child and to care for the newborn.
- Placement of a child with the employee for adoption or foster care.
- To care for the employee’s spouse, child, or parent who has a serious health condition.
- A serious health condition that makes the employee unable to perform the functions of his or her position.
- Any qualifying event due to an employee’s spouse, child, or parent being on covered active duty – or being called to duty – in the Armed Forces.
- To care for a service member who is the employee’s spouse, child, parent, or next of kin.
- The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year.
- An employer must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit. Any wages taken into account in determining any other general business credit may not be used toward this credit.
- The credit is generally effective for wages paid in taxable years of the employer beginning after December 31, 2017. It is not available for wages paid in taxable years beginning after December 31, 2019.
IRS urges ‘Paycheck Checkup’ for key groups; tax withholding may need adjustment
The Internal Revenue Service today encouraged several key groups of taxpayers to perform a “paycheck checkup” to check if they are having the right amount of tax withholding following recent tax-law changes.
The IRS emphasizes the new tax law changes make it especially important for specific groups of taxpayers to visit the Withholding Calculator on IRS.gov. This includes people in households with two or more jobs, who have children or dependents, who itemize their taxes, or who have high incomes or complex tax situations.
“It’s important every year for people to review if they’re having the right amount of tax withheld from their paychecks,” said Acting IRS Commissioner David Kautter. “This year, it’s even more urgent for people to review their situation following the new tax law changes. As people complete their 2017 tax returns, this is a perfect time to take a paycheck checkup.”
The IRS unveiled several new features to help taxpayers understand the implications of the new Tax Cuts and Jobs Act and navigate the complex issues affecting withholding. During the Paycheck Checkup campaign, the IRS is highlighting these efforts, including new YouTube videos and a special Tax Tip series.
The centerpiece of the effort is the updated Withholding Calculator on IRS.gov.
The new tax law could affect how much tax someone should have their employer withhold from their paycheck. Using the Withholding Calculator can help prevent employees from having too little or too much tax withheld.
Having too little tax withheld can mean an unexpected tax bill or potentially a penalty at tax time in 2019. And with the average refund topping $2,800, some taxpayers might prefer to have less tax withheld up front and receive more in their paychecks.
Taxpayers can use the Withholding Calculator to estimate their 2018 income tax. The Withholding Calculator compares that estimate to the taxpayer’s current tax withholding and can help them decide if they need to change their withholding by submitting a new W-4 form to their employer. When using the calculator, it’s helpful to have a completed 2017 tax return available.
Special alert for key groups to check withholding
The IRS always recommends employees check their withholding at the beginning of each year or when their personal circumstances change to make sure they’re having the right amount of tax withheld from their paychecks.
Following the recent tax law changes, it’s especially important for certain people to use the Withholding Calculator on IRS.gov to check if they are having the right amount of withholding.
Among the groups, in particular, who should check their withholding are people who:
- Belong to a two-income family.
- Work two or more jobs or only work for part of the year.
- Have children and claim credits such as the Child Tax Credit.
- Have older dependents, including children age 17 or older.
- Itemized deductions on their 2017 tax returns.
- Earn high incomes and have more complex tax returns.
Received large tax refunds or had large tax bills for 2017.
“The IRS urges people in these groups to take a few minutes and review their withholding and tax situation,” Kautter said. “Taking this step will help avoid surprises next year at tax time.”
The new law increased the standard deduction, removed personal exemptions, increased the child tax credit, limited or discontinued certain deductions, and changed the tax rates and brackets.
Withholding calculator helps with Form W-4; submit to employer as soon as possible
Taxpayers can use the results from the Withholding Calculator to help determine if they should complete a new Form W-4, Employee’s Withholding Allowance Certificate, and, if so, what information to put on it. Employees will submit the completed Form W-4 form to their employer.
When changes in personal circumstances reduce withholding allowances they are entitled to claim–including divorce, starting a second job, or a child no longer being a dependent–employees have 10 days to submit a new Form W-4 to their employer claiming the proper number of withholding allowances.
Employees who need to adjust their withholding should do so as quickly as possible so there’s more time for tax withholding to take place evenly during the rest of the year. Waiting until later in the year means there are fewer pay periods to make the tax changes – which could have bigger consequences for each paycheck.
To use the Withholding Calculator, taxpayers should have their 2017 tax returns and most recent paystubs ready. Having a completed 2017 tax return can help taxpayers work with the Withholding Calculator to help determine their proper withholding for 2018 and avoid issues when they file next year.
Taxpayers should remember that the tax law changes generally don’t affect 2017 returns that people are filing in early 2018. They affect returns for 2018, which taxpayers will file in 2019. The Withholding Calculator helps taxpayers check their 2018 withholding for their 2018 situation, including recent law changes.
Withholding Calculator results depend on the accuracy of information entered. Taxpayers whose personal circumstances change during the year should return to the calculator to check whether their withholding should be changed.