However, the new withholding tables are based on the old Form W-4, which gives details about the number of exemptions an employee claims. Personal exemptions were eliminated as a deduction by the TCJA beginning in 2018, so the new withholding levels might not produce an accurate estimate of the federal tax an employee will owe for the year. This could be especially true for taxpayers who have not reviewed their new withholding or done a tax projection for the year to determine how all of the new TCJA provisions will impact them.
A recent report by the Government Accountability Office (GAO) estimates that 1 in 5 taxpayers will under-withhold federal income taxes throughout 2018 as a result of the new withholding tables. The large change in withholding for 2018 could cause some taxpayers to have a lower refund than they are used to or even owe tax and underpayment penalties when filing their tax returns in 2019. Additionally, the IRS has recently warned taxpayers to check their withholdings using the IRS online calculator to make sure they have enough withheld to avoid penalties and a balance due at the end of the year.
If your federal withholding was reduced during 2018 as a result of the federal withholding table changes, we recommend reviewing a tax projection or using the IRS online calculator before the end of the year to ensure that you have withheld enough during 2018 to cover your tax liability. If you have under-withheld, reviewing this information before the end of the year is a great idea while there is still time to withhold more to make up for a short fall.