The biggest tax story in recent memory was the passage of the Tax Cuts and Jobs Act, which President Trump signed into law on Dec. 22, 2017. The new law creates several notable changes to withholding policies, the standard deduction, personal exemptions, the child tax credit and more. As we head toward the end of the year (and the beginning of tax season), we thought a tax reform primer is in order. Here’s what you need to know to prepare for next year’s filing.
Many taxpayers’ withholding requirements were reduced in early 2018, enabling folks to keep more money from their paychecks throughout the year. However, this may mean a smaller refund than normal, or even an unanticipated tax bill next April. If you did not adjust your withholding after the requirements changed, you may be impacted and will want to keep this in mind when preparing your tax return next year.
To find out where you stand with these changes, you can use the IRS Withholding Calculator to perform a Paycheck Checkup, which will help you determine if you should adjust your withholding or make estimated or additional tax payments now. Use the results from the calculator to submit a new Form W-4 (Employee’s Withholding Allowance Certificate) to your employer.
In addition, there are changes to the standard deduction, a suspension of some personal exemptions, an increase in the child tax credit, new credits for other dependents and new limits to (or the complete elimination of) certain other deductions. Be certain to research these changes if they impact your taxes to ensure you are complying with all new regulations. And keep in mind that your refund may be different (or you may even owe the IRS) as a result of these changes. If you anticipate getting a refund, remember that some refunds cannot be issued before mid-February 2019 (particularly those refunds that claim the Earned Income Tax Credit or the Additional Child Tax Credit).
The Form 1040 for tax year 2018 is shorter and replaces the current Form 1040, Form 1040A and the Form 1040EZ. The new Form 1040 can be supplemented with up to six additional schedules if needed. If you prepare and file your own taxes electronically, you must sign and validate your electronic tax return by entering your prior-year Adjusted Gross Income or your prior-year Self-Select PIN.
Get the whole story
Since the Tax Cuts and Jobs Act became law, the IRS has been working with tax return professionals and tax software developers to implement the new law and ensure taxpayers can rely upon these services for accurate information. To uncover how the law might impact you and your family, the IRS has created a new publication, Tax Reform Basics for Individuals and Families, which provides a complete overview of everything you need to know.