In 2017, the IRS received 152,235,000 tax returns — and of those returns, more than 73 percent were granted a refund. With the average refund last year standing at $2,895, you might think getting a windfall in the spring is a good thing. But rather than giving the government an interest-free loan all year, wouldn’t you have preferred to have an extra $241.25 per month in your paycheck?
On the other hand, the 27 percent of taxpayers not receiving a refund may be getting the opposite — a big tax bill. They may not be having enough money withheld from their paychecks for taxes.
This is why it’s important to withhold the right amount of taxes out of your paycheck. Let’s review how to cover your projected tax liability while minimizing your refund. (See also: Bigger Paycheck or Bigger Tax Refund — Which Should You Pick?)
Meet the IRS Withholding Calculator
With the passing of the Tax Cuts and Jobs Act, many Americans are still trying to figure out the full effects of this legislation on their paychecks. In an effort to help taxpayers make sense of recent changes to the tax law, the IRS updated its Withholding Calculator on February 28, 2018.
While the IRS recommends that all taxpayers take a second look at how much in taxes they’re taking out of their paychecks, the agency highly encourages the following groups to check their withholdings for 2018:
People with two or more jobs at the same time or who only work for part of the year.
People with children who claim credits such as the Child Tax Credit.
People who itemized deductions in 2017.
People with high incomes and more complex tax returns.
How to use the IRS Withholding Calculator
Here’s your game plan to achieve a “Goldilocks” withholding rate on your paycheck this year.
1. Gather your latest pay stub(s) and latest tax return
If you don’t receive a pay stub in the mail, contact your human resources office to get a copy or learn how you can download one online from your company portal. Depending on your unique financial situation, you may…
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