The Treasury Department and IRS on Wednesday released a new online calculator that allows taxpayers to figure out if they should make changes to their tax withholding under the new tax law.
“We want to allow workers to see the new effects of the tax law in their paychecks and this calculator will achieve that,” Treasury Secretary Steven Mnuchin said in a news release. “Employees should also use the calculator every year in order to ensure they continue to have the appropriate withholding. This ‘paycheck checkup’ is more important than ever and will allow employees to see the tax cuts properly reflected in their withholding.”
The calculator’s release comes after Treasury and the IRS released new guidance last month that adjusted the amounts that companies set aside from their employees’ paychecks for federal taxes. Employers were instructed to adopt the new withholding tables by Feb. 15.
The new withholding guidance reflected three major changes to the tax code under the new law: the new tax rates, the larger standard deduction and the repeal of personal exemptions.
Mnuchin has said that 90 percent of wage earners will see bigger paychecks due to the guidance.
The IRS said that those with simple tax situations may not need to make any changes to their withholding because of the new tax law. However, those with more complicated returns may want to look at their returns to ensure that their paychecks don’t have too much or too little money set aside for taxes. Those who the IRS suggested use the calculator include households with two incomes, those claiming the child tax credit or those with itemized deductions last year.
“Withholding issues can be complicated, and the calculator is designed to help employees make changes based on their personal financial situation,” said acting IRS Commissioner David Kautter. “Taking a few minutes can help taxpayers ensure they don’t have too little – or too much – withheld from their paycheck.”
The IRS recommended that people have copies of their recent pay stubs and tax returns with them when using the calculator. The agency said it does not save information that people put into the tool or ask for personally identifiable information.
If taxpayers discover that they need to update their withholding, the calculator will give them information about submitting new W-4 forms, which taxpayers should provide to their employers.