SmallBusiness.com Guide to Taxes – SmallBusiness.com https://smallbusiness.com Small business information, insight and resources | SmallBusiness.com Thu, 17 May 2018 21:15:30 +0000 en-US hourly 1 https://wordpress.org/?v=4.9.5 What the IRS Wants You to Know About the Employer Credit for Paid Family and Medical Leave | 2018 https://smallbusiness.com/employees/family-leave-tax-credit/ https://smallbusiness.com/employees/family-leave-tax-credit/#respond Fri, 04 May 2018 17:17:21 +0000 https://smallbusiness.com/?p=31638

An employer credit for paid family and medical leave was created by the “Tax Cuts and Jobs Act”  passed in 2017. Employers may claim the credit based on wages paid to qualified employees while they are on family and medical leave. 


(Information via IRS.)

Facts about the paid family and leave credit

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 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 towards 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.


Questions & Answers | Employer Credit for Paid Family and Medical Leave

Q | What is the employer credit for paid family and medical leave?

A |  This is a general business credit employers may claim, based on wages paid to qualified employees while they are on family and medical leave, subject to certain conditions.


Q | Who may claim the employer credit for paid family and medical leave?

A | Employers must have a written policy in place that meets certain requirements, including providing:

  • At least two weeks of paid family and medical leave (annually) to all qualifying employees who work full time (prorated for employees who work part-time), and
  • The paid leave is not less than 50 percent of the wages normally paid to the employee.

Q | Who is a qualifying employee?

A | A qualifying employee is an employee under the Fair Labor Standards Act who has been employed by the employer for one year or more and who, for the preceding year, were compensated more than a certain amount. For an employer claiming a credit for wages paid to an employee in 2018, the employee must not have earned more than $72,000 in 2017.

Q | What is “family and medical leave” for purposes of the paid family and medical leave credit?

A | This is a leave for one or more of the following reasons:

  • Birth of an employee’s child and to care for the child.
  • 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 exigency due to an employee’s spouse, child, or parent being on covered active duty (or having been notified of an impending call or order to covered active duty) in the Armed Forces.
  • To care for a service member who is the employee’s spouse, child, parent, or next of kin.

If an employer provides paid vacation leave, personal leave, or medical or sick leave (other than leave specifically for one or more of the purposes stated above), that paid leave is not considered family and medical leave.  In addition, any leave paid by a State or local government or required by State or local law will not be taken into account in determining the amount of employer-provided paid family and medical leave.

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.

Q | How is the paid family and medical leave credit calculated?

A | 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.  The minimum percentage is 12.5% and is increased by 0.25% for each percentage point by which the amount paid to a qualifying employee exceeds 50% of the employee’s wages, with a maximum of 25%.  In certain cases, an additional limit may apply.

Q | How does the credit impact an employer’s deduction for the wages paid to an employee while on family and medical leave or claim for any other general business credits?

A | An employer must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit.  Also, any wages taken into account in determining any other general business credit may not be used in determining this credit.

Q | What is the effective date of the paid family and medical leave credit?

A | The credit is generally effective for wages paid in taxable years of the employer beginning after December 31, 2017, and it is not available for wages paid in taxable years beginning after December 31, 2019.

Q | Will the IRS provide additional information on the credit?

A | The IRS expects that additional information will be provided that will address, for example, when the written policy must be in place, how paid “family and medical leave” relates to an employer’s other paid leave, how to determine whether an employee has been employed for “one year or more,” the impact of State and local leave requirements, and whether members of a controlled group of corporations and businesses under common control are treated as a single taxpayer in determining the credit.

(Information via IRS.)


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How Some Small Businesses Are Trying to Master the New Tax Code | 2018 https://smallbusiness.com/taxes/tax-bill-2018/ Tue, 03 Apr 2018 21:29:18 +0000 https://smallbusiness.com/?p=31345

WSJ.com takes a look at how some small businesses are seeking to lower their 2018 tax bills by splitting their company in two, changing their legal status and reclassifying workers. (Note: Don’t try these at home without the hands-on help of your trusted advisors. Even then, if you’re out in front too far, you should expect some future conversations with the IRS .) 


Quote from WSJ.com:

“Owners of closely held businesses … are splitting operations apart, reclassifying them and re-categorizing their activities, all in an effort to get as much of their income taxed at the new low rates as possible. The legislation contains more uncertainties than usual for a tax overhaul because of the speed of its drafting, which left little opportunity for the public and congressional scrutiny that often identifies confusion in bills.

“Tax experts are searching for moves business owners can make that will disrupt their businesses the least, while best qualifying for new tax breaks Congress has dangled. The private sector’s old game of cat-and-mouse with the Internal Revenue Service and Congress, in other words, is intensifying, and is likely to play out over years in regulations, audits, appeals, and litigation.”

Continue reading at WSJ.com | “Crack and Pack: How Companies are Mastering the New Tax Code”


 

 

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Use this IRS Withholding Calculator to Perform a Quick Paycheck Checkup | 2018 https://smallbusiness.com/taxes/irs-withholding-calculator/ Wed, 28 Mar 2018 18:37:44 +0000 https://smallbusiness.com/?p=31259

Important to note: While the withholding calculator works for most taxpayers, people with more complex tax situations, including many types of small business owners, should use the instructions in Publication 505, Tax Withholding and Estimated Tax, expected to be updated in early spring, 2018. (Link to the latest version of Publication 505.)


The IRS encourages everyone to use the withholding calculator to perform a quick “paycheck checkup.”  This is even more important this year because of recent changes to the tax law for 2018. The calculator helps you identify a taxpayer’s tax withholding to make sure you have the right amount of tax withheld from your paycheck at work. While you should always seek help from your tax preparer or accountant regarding taxes, this IRS tool can be even more helpful this year because of recent changes to the tax law for 2018. (If you haven’t used the IRS withholding calculator previously, see information on this page, below the link to the calculator.)


Ready to start? Click here!

https://apps.irs.gov/app/withholdingcalculator

Note | The withholding calculator does not ask the user for personally identifiable information, such as name, social security number, address, or bank account numbers. The IRS does not save or record the information the taxpayer enters in the calculator.

Withholding calculator video provided by IRS

Why should you check your withholding?

There are several reasons to check your withholding:

  • Checking your withholding can help protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time next year.
  • At the same time, with the average refund topping $2,800, you may prefer to have less tax withheld up front and receive more in your paychecks.

If you are an employee, the withholding calculator helps you determine whether you need to give your employer a new Form W-4, Employee’s Withholding Allowance Certificate. You can use your results from the calculator to help fill out the form and adjust your income tax withholding.

Plan ahead: Tips for using the calculator

The calculator will ask you to estimate values of your 2018 income, the number of children you will claim for the Child Tax Credit and Earned Income Tax Credit, and other items that will affect your 2018 taxes. This process will take a few minutes.

  • Gather your most recent pay stubs.
  • Have your most recent income tax return handy; a copy of your completed Form 1040 will help you estimate your 2018 income and other characteristics and speed the process.
  • Keep in mind that the calculator’s results will only be as accurate as the information you provide.  If your circumstances change during the year, come back to this calculator to make sure that your withholding is still correct.
  • The Withholding calculator does not ask you to provide sensitive personally-identifiable information like your name, Social Security number, address or bank account numbers. The IRS does not save or record the information you enter on the calculator.

To Change Your Withholding:

  • Use your results from this calculator to help you complete a new Form W-4, Employee’s Withholding Allowance Certificate, and
  • Submit the completed Form to your employer as soon as possible. Withholding takes place throughout the year, so it’s better to take this step as soon as possible.

Special Note for 2019:

If you follow the recommendations at the end of this calculator and change your withholding for 2018, the IRS reminds you to be sure to recheck your withholding at the start of 2019. This is especially important if you reduce your withholding sometime during 2018. A mid-year withholding change in 2018 may have a different full-year impact in 2019. So if you do not file a new Form W-4 for 2019, your withholding might be higher or lower than you intend. To help protect against having too little withheld in 2019, we encourage checking your withholding again early in 2019.

If you have additional questions about your withholding, consult your employer or tax advisor.

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It’s That Season Again: Tips to Prevent Tax Phone Scams | 2018 https://smallbusiness.com/scam/telephone-tax-scams/ Thu, 22 Mar 2018 19:48:12 +0000 https://smallbusiness.com/?p=31232

There are several versions of tax scams. The classic telephone con explained below continues to thrive, especially during filing season. Share these IRS phone scam prevention tips with your employees and you could save someone a big headache — that is, in addition to the big headaches they may be having, just because it’s tax time. 


Here is how the IRS scam telephone call  works

  • Scammers call taxpayers telling them they owe taxes and face arrest if they don’t pay. Sometimes, the first call is a recording, asking taxpayers to call back to clear up a tax matter or face arrest.
  • When taxpayers call back, the scammers often use threatening and hostile language. The thief claims the taxpayers may pay their debts using a gift card, other pre-paid cards or wire transfers.
  • Taxpayers who comply lose their money to the scammers.

Remember! The IRS does none of these

  • Call taxpayers demanding immediate payment using a specific payment method, but will first mail a bill.
  • Threaten to have taxpayers arrested for not paying taxes.
  • Demand payment without giving taxpayers an opportunity to question or appeal the amount the IRS believes they owe.
  • Ask for credit or debit card numbers over the phone.

If you should receive one of these phone calls, the IRS says you should do these

More Information

How to know it’s really the IRS calling or knocking on your door


photo: iStock

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If You Take Money Out of a Retirement Plan Early, Here are Some Things the IRS Wants You to Know | 2018 https://smallbusiness.com/taxes/ira-early-withdrawal/ Fri, 16 Mar 2018 19:05:20 +0000 https://smallbusiness.com/?p=31172

Some small business owners — or any taxpayer with an Individual Retirement Account (IRA) or retirement plan, may need to take out money early from their plan. However, doing so can trigger an additional tax on early withdrawals. They would owe this tax on top of other income tax they may have to pay. Here are a few key points to know provided by the Internal Revenue Service. (Note: Everyone’s situation is different so you should check with your trusted financial advisor before making any decision about money.)


Early withdrawals | An early withdrawal is taking a distribution from an IRA or retirement plan before reaching age 59½.

Additional tax | Taxpayers who took early withdrawals from an IRA or retirement plan must report them when they file their tax return. They may owe income tax on the amount plus an additional 10 percent tax if it was an early withdrawal.

Nontaxable withdrawals |  The additional 10 percent tax doesn’t apply to nontaxable withdrawals, such as contributions that taxpayers paid tax on before they put them into the plan.

Rollover | A rollover happens when someone takes cash or other assets from one plan and puts it in another plan. They normally have 60 days to complete a rollover to make it tax-free.

Exceptions | There are many exceptions to the additional 10-percent tax. Some of the rules for retirement plans are different from the rules for IRAs.

Disaster Relief |  Participants in certain disaster areas may have relief from the 10-percent early withdrawal tax on early withdrawals from their retirement accounts.

File Form 5329 | Taxpayers who took early withdrawals last year may have to file Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts, with their federal tax returns.

 

 


Additional IRS resources

Interactive Tax Assistants

IRA FAQs |  Distributions/Withdrawals
Publication 590-B | Distributions from Individual Retirement Arrangements
Publication 575 | Pension and Annuity Income


 

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IRS Warns Taxpayers of an Old Scam With Some New Twists | 2018 https://smallbusiness.com/taxes/tax-scam-deposit-bank-account/ Fri, 02 Mar 2018 18:58:47 +0000 https://smallbusiness.com/?p=31054

It’s that time of year again: Tax-related scam season. This year, the Internal Revenue Service (IRS) has already issued a warning of new spins on an old scam. And they’re doozies. (Note: We always recommend that a business owner seek advice from their trusted legal, accounting, financial or tax advisor regarding taxes as your situation or issue may be different from someone else’s.


The Basic Scam and New Versions

Basic Scam Version #1 | What the criminal does

  1. Gains access to tax preparer’s or taxpayer’s computer to steal taxpayer data.
  2. Uses the stolen information to file the tax return in the guise of the taxpayer.
  3. Has refund deposited into taxpayer’s bank account
  4. Contacts the victim, telling them the money was mistakenly deposited into their account and asking them to return it.

New Scam Version #2 | What the criminal does

  1. Gains access to tax preparer’s computer to steal taxpayer data.
  2. Uses the stolen information to file the tax return in the guise of the taxpayer
  3. Has refund deposited into taxpayer’s bank account.
  4. Criminals pose as debt collection agency officials acting on behalf of the IRS.
  5. Thief contacts the taxpayer to report an erroneous refund deposit
  6. Theif requests that the taxpayer forward the money to the thief’s collection agency.

New Scam Version #3

  1. Gains access to tax preparer’s computer to steal taxpayer data.
  2. Uses the stolen information to file the tax return in the guise of the taxpayer
  3. Has refund deposited into taxpayer’s bank account.
  4. The taxpayer who received the erroneous refund gets an automated call with a recorded voice saying the caller is from the IRS.
  5. The recording threatens the taxpayer with criminal fraud charges, an arrest warrant and a “blacklisting” of his or her Social Security number.
  6. The recorded voice gives the taxpayer a phony case number and telephone number to call to return the refund.
  7. The taxpayer who received the erroneous refund gets an automated call with a recorded voice saying the caller is from the IRS.
  8. The recording threatens the taxpayer with criminal fraud charges, an arrest warrant and a “blacklisting” of his or her Social Security number.
  9. The recorded voice gives the taxpayer a phony case number and telephone number to call to return the refund.

What taxpayers should do if someone contacts them regarding an erroneous refund:

  • Before having any discussion with the individual who contacts you, contact your tax preparer, financial, or legal advisor regarding the contact.
  • The IRS encourages taxpayers to discuss the issue with their financial institutions because there may be a need to close bank accounts.
  • Taxpayers receiving erroneous refunds also should contact their tax preparers immediately.
  • There are established procedures taxpayers should follow to return erroneous funds to the IRS.
  • See IRS Tax Topic Number 161, “Returning an Erroneous Refund. It has full details about how to return the money, including the actual mailing addresses where a taxpayer should send a paper check, if necessary. By law, interest may accrue on erroneous refunds.

Via: IRS | IRS Tax Tip 2018-32, March 1, 2018

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What Are Your Customers Doing With the Tax Refund They Expect This Year? | 2018 https://smallbusiness.com/taxes/tax-refund-options/ Wed, 28 Feb 2018 20:42:05 +0000 https://smallbusiness.com/?p=31023

More Americans than ever plan to hold on to their tax refunds this year rather than spend the money due them if they overpaid their estimated tax payments during the year. That’s according to the 12th annual tax refund survey released today (2.28.2018) by the National Retail Federation and Prosper Insights and Analytics. While anticipating being frugal, some taxpayers said they may also “splurg” a little. Here are some highlights from the survey.


What percentage of taxpayers are expecting a refund?

65% | Percentage of all taxpayers who expect a refund

The 65% who expect a refund say they will use it these ways…

49% | Put it into savings (up one percentage point from last year and the highest level in the survey’s 12-year history
35% |Pay down debt (similar to last year and  far below the peak of 48 percent seen during the 2009 “great recession”
22% | Spend it on everyday expenses
12% | Use the money for a vacation
10%  | Will “splurge” on dining out, trips to a spa or apparel
9% | Invest nn home improvements
8% | Will make major purchases (TVs, furniture, automobiles).


When are taxpayers filing their returns this year?

“Younger consumers are being more mindful about their hard-earned money, especially those 18-24 who have already filed their taxes this year, higher than any other age group, Prosper’s Phil Rist said. “Although this group is focused on allocating a portion of their refunds to savings, they are also more likely to use them for everyday expenses compared with any other age group.”


 

How do Americans plan to prepare and file their tax returns in 2018?

67% | (Percentage of Americans who will) file their taxes online
39% | Use computer software for filing tax returns
20% | Hire an accountant
17% | Use a tax preparation service
14% | Preparing their taxes manually
9% | Seek help from a spouse, friend or relative

Among those using a tax preparation service, how much do taxpayers spend?

$5.7 billion (or $133 per person) | The average amount a taxpayer who usees a preparation service will spend (about the same as last year)


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It’s Tax Season: Here are 10 Things the IRS Wants Every Taxpayer to Know | 2018 https://smallbusiness.com/taxes/irs-tax-advice-2018/ Tue, 06 Feb 2018 18:42:56 +0000 https://smallbusiness.com/?p=30650

The IRS is now accepting tax returns as the annual tax filing season is underway. It expects taxpayers to file more than 155 million returns this year. Here are ten things the IRS wants taxpayers to consider as they are filing their tax returns (or getting help from your trusted tax advisor) this year.


  1. People have until Tuesday, April 17, 2018, to file their 2017 returns and pay any taxes due.
  2. Choosing e-file and direct deposit is the fastest and safest way to file an accurate income tax return and receive a refund.
  3. Families with incomes of $66,000 or less can file for free. They can do so using brand name software through the IRS Free File program. People who earned more than $66,000 may use Free File Fillable Forms.
  4. By law, the IRS cannot issue some refunds before mid-February. These refunds are for tax returns that claim the Earned Income Tax Credit or the Additional Child Tax Credit. The IRS expects the earliest refunds related to EITC and ACTC to be available in taxpayer bank accounts or on debit cards starting on Feb. 27, 2018.
  5. The best way for taxpayers to check the status of a refund is to use “Where’s My Refund?” on IRS.gov or the IRS2Go mobile app.
  6. Taxpayers with low and moderate incomes can get help filing their taxes for free. The Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs have more than 12,000 sites around the country. To find the nearest site, use the VITA/TCE Site Locator on IRS.gov or the IRS2Go mobile app.
  7. Taxpayers should have their year-end statements in hand before filing. This includes Forms W-2 from employers and Forms 1099 from banks and other payers. Doing this helps avoid refund delays and the need to file an amended return.
  8. IRS.gov is the place to go online for tools that help people as they prepare and file their tax return. This includes:
  9. Many Individual Taxpayer Identification Numbers expired on Dec. 31, 2017. This includes any ITIN not used on a tax return at least once in the past three years. Also, any ITIN with middle digits of 70, 71, 72 or 80 is now expired. Affected taxpayers should act soon to renew their number.
  10. Some taxpayers using a tax filing software product for the first time may need their Adjusted Gross Income amount from their prior-year tax return. They need this to verify their identity. Taxpayers using the same tax software they used last year will not need to enter this information.

via IRS.gov

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Moving Due to Work? Here are Some Tax-Related Tips From the IRS | 2018 https://smallbusiness.com/taxes/moving-expense-tax-deduction/ Tue, 23 Jan 2018 16:49:06 +0000 https://smallbusiness.com/?p=28832

You or an employee may be able to deduct certain expenses related to moving to a new home if the move is related to your work. Here are some guidelines related to a work-related move, provided by the U.S. Internal Revenue Service.

(Note: As we always advise, each individual or small business can have unique circumstances that can impact the taxes you may or may not owe, so always seek advice from your trusted business, tax and financial advisor when making decisions about taxes.)


General guidelines

Home means the taxpayer’s main home | It does not include a seasonal home or other homes owned or kept up by the taxpayer or family members. Eligible taxpayers can deduct the reasonable expenses of moving household goods and personal effects and of traveling from the former home to the new home.

Reasonable expenses may include the cost of lodging while traveling to the new home | The unreimbursed cost of packing, shipping, storing and insuring household goods in transit may also be deductible.

Who can deduct moving expenses?

The move must closely relate to the start of work | Generally, taxpayers can consider moving expenses within one year of the date they start work at a new job location.

The distance test | A new main job location must be at least 50 miles farther from the employee’s former home than the previous job location. For example, if the old job was three miles from the old home, the new job must be at least 53 miles from the old home. A first job must be at least 50 miles from the employee’s former home.

The time test |  After the move, the employee must work full-time at the new job for at least 39 weeks in the first year. Those self-employed must work full-time at least 78 weeks during the first two years at the new job site.

Advice and resources from the IRS

Reimbursed expenses | If an employer reimburses the employee for the cost of a move, that payment may need to be included as income. The employee would report any taxable amount on their tax return in the year of the payment.

Form 3903, Moving ExpensesThe form you need to use to claim the moving expense deduction when filing a federal tax return.

Nondeductible expenses | Any part of the purchase price of a new home, the cost of selling a home, the cost of entering into or breaking a lease, meals while in transit, car tags and driver’s license costs are some of the items not deductible.

Recordkeeping | It is important that taxpayers maintain an accurate record of expenses paid to move. Save items such as receipts, bills, canceled checks, credit card statements, and mileage logs. Also, taxpayers should save statements of reimbursement from their employer.

Military moves | Different rules may apply to members of the Armed Forces or a retiree or survivor moving to the United States.

Address Change | After any move, update the address with the IRS and the U.S. Post Office. To notify the IRS file Form 8822, Change of Address.

Additional moving-related resources from the IRS


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When will Payroll Withholdings Amount Change (Related to the Tax Act)? | 2018 https://smallbusiness.com/employees/payroll-tax-changes/ Fri, 05 Jan 2018 22:17:46 +0000 https://smallbusiness.com/?p=30250

If you manage payroll duties for your business (vs. outsourcing such duties to a payroll service), you may be wondering when the new withholding amounts related to the tax reform bill need to be reflected in your employees’ paychecks? So far, the answer is “when the IRS tells us.”


Here’s the current (1.05.2018) answer to the question provided by the IRS:

It was issued on December 26, 2017

“The IRS is working to develop withholding guidance to implement the tax reform bill signed into law on December 22. We anticipate issuing the initial withholding guidance in January, and employers and payroll service providers will be encouraged to implement the changes in February. The IRS emphasizes this information will be designed to work with the existing Forms W-4 that employees have already filed, and no further action by taxpayers is needed at this time.

“Use of the new 2018 withholding guidelines will allow taxpayers to begin seeing the changes in their paychecks as early as February. In the meantime, employers and payroll service providers should continue to use the existing 2017 withholding tables and systems.”

IRS updates can be found here

https://www.irs.gov/newsroom/irs-statement-withholding-for-2018
Payroll information in a nutshell

  • Use of the new 2018 withholding guidelines will allow taxpayers to begin seeing the changes in their paychecks as early as February.
  • As of 1.5.2018, The IRS has not released the withholding guidelines
  • In the meantime, employers and payroll service providers should continue to use the existing 2017 withholding tables and systems
  • Your January 2018 paychecks should look largely the same as your December 2017 paychecks

Remember: Your situation may not be like others so it is important for you to talk with your trusted advisors before making any decisions about taxes.

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