Federal Tax Withholding Update

Beck & Company provides accounting and tax service for nonprofits, and as part of our services, we offer informative updates on IRS tax regulations. Updates from the IRS this year include a new W-4 form and a new withholding calculator. It is important for you to investigate these and other IRS updates and inform your nonprofit employees so that they can make informed judgments on their personal withholdings.

Withholding Changes and the New Calculator

The Tax Cuts and Jobs Act made significant changes to tax law including increasing standard deductions, increasing the child tax credit limit, removing personal exemptions, limiting or discontinuing certain deductions and changing the tax rates and brackets.

How do you know if you should double check your withholding? Anytime you have a major life change, such as marriage, divorce, widowhood, new children or similar changes in marital or family status, it is time for a withholding checkup.

Others who should check their withholding amounts by using the new IRS withholding calculator include:

  • Individuals with two or more jobs at the same time or who only work for part of the year.
  • Individuals with children who claim credits such as the Child Tax Credit.
  • Individuals who itemized deductions in 2017.
  • Individuals with high incomes and more complex tax returns.
  • Anyone who works more than one job.

There are certain instances when the withholding calculator may not be adequate to help you assess your taxes. In this case, you should speak with a tax advisor. Situations that may be too complex for the withholding calculator include people with capital gains, those who owe an alternative minimum tax, and self-employed people.

The new withholding calculator asks people to estimate how much they will make in 2018. It also asks questions about other items that may affect taxes. It’s easier to use if you have a recent pay stub handy. The information on your recent pay stub helps you determine how much you are currently withholding and any potential changes you may need to make in the current year.

Of course, the new IRS withholding calculator is only as accurate as the information that you enter. If you enter incorrect information, you won’t get accurate results. Use your best judgment and when in doubt, speak with your tax advisor or an accountant.

W4 Forms

IRS form W-4 helps your employer to withhold the proper amount of taxes from your pay. Nonprofits and those working for nonprofits must withhold and pay proper individual and employment taxes. Being a “not for profit” or having “tax exempt” status does not mean that employees are tax exempt or that an organization is exempt from reporting proper taxes. If a nonprofit has such a designation, it means that the organization does not to pay certain taxes. The people working for the nonprofit must still pay applicable employment taxes.

What to Do if Withhold Information Has Changed

If your withholding information has changed, it is time to update your W-4 information. Human resources managers should be ready to help employees update W-4 information and assist them with any questions they may have regarding the new tax law changes, withholding, and other payroll and personnel requests.

Anytime changes affect income taxes, it’s time to check your withholding. Checking your W4 now may save you from the inconvenience of under or over-paying employment taxes.

Beck & Company

Since 1987, we have helped many nonprofits in the Washington D.C. area and along the Eastern seaboard with their accounting and financial management needs. We provide audit, tax, accounting, and consulting service that addresses all aspects of a small to mid-sized nonprofit organization’s business. Contact us or call 703-834-0776 x8001.