For all the amateurs in the tax world, a tax withholding chart is nothing but a chart drawn to help employers and payroll service providers to understand how much tax they should withhold from their employees’ paycheck. Are you wondering on what basis the taxes are withheld? Basically, depending on the employee’s wages, their marital status, the number of allowances they claim. Read on to understand the Federal withholding tax table for 2018 and how you can reduce your tax withholding.
IRS tax withholding chart
• The IRS tax withholding chart has seven tax brackets that have the tax rates for different income slabs for both individuals and married couples.
• The 2018 IRS tax withholding chart has brought some major changes in the standard tax deduction. According to the chart, a standard deduction of $24,000, as opposed to last year’s deduction of $13,000, will be made from the joint filings of married couples.
• On the other hand, single people will have to bear the brunt of having a standard deduction of $12,000 this year, compared to last year’s $6,500 deduction.
• There is an evident drop in the tax rate compared to the previous year’s tax withholding chart. While the top rate on the chart has fallen from 39.6% to 37%, yet again, the lowest rate is 10%.
• Singles with income up to $9,525 and married couples with a joint filing of up to $19,050 have the lowest withheld rate of 10%.
• The highest withheld rate is 37%, and it is for singles who earn over $500,000 and married couples who jointly earn more than $600,000.
• If you compare this year’s tax withholding chart with that of the previous year, you will realize that the difference in the tax rates in the initial income slabs is a bare minimum; however, as the income increases, the tax rate difference is evident.
• The best way to understand your tax deductions is to keep a tab on Form W-4. This form is designed by the IRS for employees to adjust their tax withholding based on their personal situations. With the help of this form, employees can show their employer their financial condition.
• Note that every time your personal or financial information changes, ensure that the changes reflect in Form W-4.
Using the IRS withholding calculator
• The IRS emphasizes the use of their withholding calculator to make sure that the right amount of tax is withheld from your paycheck.
• A habit of keeping a tab on your withholding will ensure that you are aware in case of under withholding of taxes, where very little tax is withheld from you, or in case of over-withholding of tax, where a lot of tax is withheld.
• Some basic information that you need to provide the withholding calculator is an approximate total of your annual income of the year, the number of children in your house who can claim for the Child Tax Credit, and your earned income tax credit.
• Make sure that you feed the accurate data in the system so that the calculator can estimate your tax withholding.
• If your information changes at any point during the financial year, make it a point to go back and update the withholding calculator.
• Note that the calculator does not require you to feed sensitive details such as your social security number, credit card details, bank account details, and home address.
Over-withholding of taxes
• When it comes to tax withholding, you want it to be the right amount. While under-withholding of tax might lead to you having to pay a penalty next year, over-withholding of tax is a burden that will make it impossible for you to save from your paycheck.
• Many employees today are victims of over-withholding of taxes. It is only when these people file their tax returns, they realize that an absurd amount of their income is withheld in form of tax.
• With the help of the withholding calculator, these people can reduce their withholding and ensure that they get more money in their paycheck every month instead of getting a huge tax return amount in the next financial year.
Tips to change your withholding
• If you make any changes in your withholding in 2018, then you must make sure that you recheck your withholding in 2019 too.
• This is advisable because the changes you make in the middle of this year will most likely have a major impact on the withholding of 2019.
• So, the best thing to do is to keep rechecking your withholding every few months, especially in the early months of 2019.
By being well acquainted with the tax withholding chart and correct usage of the withholding calculator, you can ensure that nothing but the right amount of money from your paycheck is withheld from you as the tax.
