It’s Financial Literacy Month! A pretty exciting month around here. What have you been doing to refresh your finances? Here’s one idea:
If you’re feeling like there is ‘too much month at the end of your money’ you may be able to give yourself a raise simply by completing a Paycheck Check-up.
In January 2018 the new tax tables came out and in February your employer should have begun withholding taxes using those tables (the new tables are a result of the Tax Cuts and Jobs Act of 2017). But what does that mean for your bottom line? I don’t know about you, but I haven’t noticed much of a difference in my take home pay over the past two pay periods. From the look of things neither have many others: this morning I read about a survey in a CNBC.com article that showed just 32 percent of the American public reports having more take-home pay due to the tax cuts! This may be due to many factors, but I discovered that one way to realize those tax cuts is by conducting a paycheck check-up.
What is a paycheck check-up?
A paycheck check-up is simply reviewing your personal situation to make sure you are having the correct amount of taxes withheld through your paycheck. The IRS recommends that people do this whenever they have a life changing event (getting married or divorced, having children, change in income, etc…). However, this year it is especially important due to the passing of the Tax Cuts and Jobs Act, especially for those who are in two-income families, have previously itemized their deductions, have two or more jobs, work part of the year, have dependents, high incomes, complex tax returns, or had a large tax refund or large tax bill in 2017.
Review your W-4 form
For some of us a bigger paycheck is not going to happen automatically, but only after we complete a new W-4 form and submit it to our payroll departments. Due to the changes to the tax brackets some may need to change the number of allowances claimed on the W-4 (the higher number of allowances one claims the higher their take-home pay, and the reverse is true of the lower). Many people claim zero or one allowance, but this may result in too many taxes being taken out of your paycheck. I have always completed the worksheet on the W-4 form, especially since both my husband and I work. Sadly, the worksheet on the new W-4 form is fairly complex and requires that you go to “Publication 505” to fill out another worksheet to project your taxable income for 2018; as of this writing the publication has not yet been updated for 2018. So that was not useful.
Use the Withholding Calculator
If you’re like me and forms make you feel overwhelmed and want to shut down, you may want to use the withholding calculator at the IRS website. You will need to gather your completed 2017 tax form, and the most recent pay stub from all sources of earned income (if you have more than one job, or a spouse you will need those pay stubs as well). Next you will answer a series of questions about your income, dependents, pre-tax withholdings (retirement, HSA/FSA, health insurance premiums, etc…), as well as any tax credits and deductions you received in 2017 and believe you will receive for 2018. This calculator estimates your tax liability for the next year and recommends the number of allowances you can put on your W-4 form so that you have the correct amount of taxes withheld each pay day. Once you know the proper number of allowances to put down you can complete a new W-4 and turn it in to your Employer or HR Department.
Paycheck Check-up Completed!
Both my husband and I work, and I work a small part-time job as well. I completed the withholding calculator, it took about a half an hour, and determined that I need to raise the allowances on my paycheck from one to four. For his job and my second job we will continue to claim zero allowances – the calculator tells you what to claim for each job! Easy-peasy. Although I haven’t received a paycheck since changing this I know that the higher amount of allowances will lead to a bigger paycheck – instant raise!
Warning: The withholding calculator estimate is only as good as the information you enter. Follow the directions carefully and if you get stuck click on the ? symbol on the page. You can also check out the FAQ page to see if your question is listed there. Of course, you can always ask for the help of a tax professional if you are really unsure! You can find Certified Public Accountants here.
If you complete a paycheck check-up and want to make a plan for your extra take home pay, an LSS Financial Counselor can help you make a plan to reach your saving or debt repayment goals! Or if you have debt that you want to pay down faster, we can help with that, too. Call us at 888.577.2227 for your free financial counseling session or click to GET STARTED ONLINE.
Author Shannon Doyle is a Certified Financial Counselor with LSS Financial Counseling.