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IRS: Do a Paycheck Check-Up

The federal income tax system is meant to be a pay as you go system. Paycheck earners have federal income taxes deducted from each paycheck and at the end of the year that amount should cover the majority of federal income tax liability.

Due in part to tax exemptions and credits, particularly those associated with caring for dependent children, many taxpayers receive significant tax refunds. While a big refund can feel good, having more money in each paycheck can help with ongoing expenses. On the other hand, owe too much and you may have to pay a penalty.

In February, due to the new tax law, many employees had a change in the amount of federal income tax being withheld from their paycheck. The new law increased the standard deduction, removed personal exemptions, increased the child tax credit, and changed the tax rates and brackets.

Many taxpayers will have less tax liability and saw an increase in take-home pay. However, the IRS warns that each tax filer has different circumstances and encourages use of their withholding calculator to do a “paycheck checkup.” The calendar is at: https://www.irs.gov/individuals/irs-withholding-calculator

A worthwhile strategy for many folks is to adjust withholding so that just the right amount of federal income taxes are withheld. This means not owing to much at the end of the year and not having too much in federal income taxes deducted from each paycheck. The withholding calculator is designed to help calculate that amount so you can adjust your w-4 accordingly.