The Tax Cuts and Jobs Act changed the income tax calculation for most taxpayers. The law changed rates for taxes and tax brackets, revised business expense deductions, increased the standard deduction, removed personal exemptions, increased the child tax credit, and limited or discontinued other deductions.

If You’re an Employee Who Gets a W-2

For most taxpayers, the balance due or refund calculated on the income tax return depends partly on the amount withheld by the employer. The federal government provides withholding tables that employers use as the default for calculating this amount, but one size will never fit all. Employees can tailor withholding amounts by filing a new Form W-4, Employee’s Withholding Allowance Certificate. If you consistently owe taxes each April, employees can also use the form to ask employers to withhold an additional flat-dollar amount per pay period.

The IRS recommends that employees review their withholding every year using the IRS’s Paycheck Checkup website. Taxpayers who can benefit most from this review include:

  • Two-income families
  • Individuals with multiple jobs or side hustles in the sharing economy
  • Workers who have seasonal jobs
  • Filers claiming the child tax credit
  • People who have itemized deductions in previous years
  • High-income individuals with complex returns
  • People who had large refunds or balances due last year
  • People with significant life changes during the year, such as:
    • Marriage
    • Birth or adoption of a child
    • Divorce
    • Death of a spouse or dependent

If You Have Significant Non-W-2 Income

If you’re self-employed, or if you have significant income from sources like alimony, interest, dividends, or capital gains, you may have to file estimated taxes during the year. Generally, taxpayers must do one of the following to avoid an underpayment penalty for a balance due with their annual return:

  • Pay enough through withholding, credits, and estimated taxes, that the balance due is less than $1,000
  • Deposit through withholding or estimates the lesser of:
    • 90% of the tax owed in the current year
    • 100% of the tax shown on the prior year’s return (110% of prior year tax if your prior year income was more than $150,000)

Estimated taxes are typically paid quarterly. Besides being the date when last year’s tax return is due, April 15 is also when the current year’s first estimated payment is due. The subsequent quarterly estimated tax payments are generally due June 15th, September 15th, and January 15th of the following year.

The Best-Laid Plans

Remember, changes that happen throughout the year can affect your tax liability. Be mindful of how changes in your life may affect your taxes, and don’t hesitate to contact your CRI tax advisor with questions. A consultation can help you understand the tax implications of each alternative. But when the unexpected happens, recalculating your withholding and estimates as quickly as possible can save you money and headaches when your return is due.