New Tax Law Could Deliver a Nasty Surprise a Year From Now. Here’s How to Protect Yourself

I know many of you expect the new tax laws will reduce your federal tax burden. But I have to tell you that there is a risk that when you file your 2018 tax return in early 2019 you could find yourself owing more than you thought.

The potential problem is that you may not have enough withheld from your paycheck to cover your federal tax bill.

Employers are now in the process of revamping their payroll systems to reflect the new individual tax rates. Beginning this month, you should start to see the new rates reflected in your paycheck. For many of you, it will mean having more after-tax income.

That’s the good news.

But here’s the potential bad news: your employer also uses the W-4 form you completed to calculate your withholding. That W-4 may now need to be updated to reflect how new tax rules impact your household.

While I want everyone to revisit their W-4 withholding form on file with their employers, I recommend that you wait a few weeks. The Internal Revenue Service is working on updating its free online Withholding Calculator that will incorporate all the new tax changes. The hope is that the calculator will be up and running in the next few weeks.

You can bookmark the IRS Withholding Calculator page and check back for when it is ready. It should then take you just a few minutes to find out if you should adjust your withholding. That’s as easy as asking your employer for a new W-4 form, or downloading one and handing it over to your payroll department.