The dreaded T word, that has been in the news a lot lately as Congress works on passing a new tax bill. How that bill will affect each individual’s tax situation will not likely be known until March or April, in terms of any adjustments to your withholdings. But there are other reasons to start looking at your tax withholdings for the new year.
Your filing status is determined by your status as of Midnight January 1st of the next year. That means if your divorced is finalized on December 31st 2018, you will file your taxes in April 2019 as single, not married filing jointly or seperately. This can result in a huge tax bill in April if your tax witholdings were based on your married status and not a single filer. Thus, if you anticipate your divorce being finalized in the upcoming year, you need to adjust your witholdings for next year, now, not after your divorce is done, in order to avoid a nasty tax suprise in April.
Like your filing status, child tax and dependent credits are based on the person’s age on Midnight of January 1st of the next year. Currently, the child tax credit ends once a child turns 17. So if you child turned 17 in 2017, you will not get the child tax credit, for that child, when you file taxes in April 2018. (NOTE: the current tax proposal in Congress may raise the age of the chidl tax credit to under 18). You should also change your withholdings if you are going to lose your dependent because they have aged out. Currently, parents can claim their children through age 19 (so if the child turns 20 in the year, you cannot claim them) unless the child is in college. If the child is in college, you can claim them through 24 (unless they can claim themselves or someone else can claim them, such as they marry and go to graduate school). Again, not changing your withholdings at the begining of the year the child will age out, will result in a nasty tax suprise the next April.
If you are gaining a dependent, either through a pregnancy, adoption, or Marriage next year, you can adjust your withholdings at the start of the year in order to avoid overpaying on your taxes. Here, though, is one place in which wiating will not hurt you as overpaying on your withholdings will only reduce anything you have to pay in April or result in a refund.
Taxes can be complexed and involved, but the 3 instances above are some of the easiest things to consider in making sure your withholdings are going to cover your expected taxes and you don’t end up with a huge bill in April.