WASHINGTON — The Internal Revenue Service today advised employees, whose 2018 federal income tax withholding unexpectedly falls short of their tax liability for the year, that they can still avoid a tax-time surprise by making a quarterly estimated tax payment directly to the IRS. The deadline for making a payment for the fourth quarter of 2018 is Tuesday, Jan. 15, 2019.

Although the Tax Cuts and Jobs Act (TCJA), the tax reform law enacted last December, lowered tax rates for most people, it also nearly doubled the standard deduction and limited or discontinued many deductions, among other changes. Though most 2018 tax filers are still expected to get refunds, the number who owe tax, and in some cases a penalty, is likely to be larger than in recent years, and many of them are likely to be people who have always gotten refunds.

Taxpayers who itemized in the past who now choose to take advantage of the increased standard deduction, as well as two-wage-earner households, employees with nonwage sources of income and those with complex tax situations, are at most risk of having too little tax withheld from their pay. This is especially true if they didn’t update their withholding earlier this year.

In addition, various financial transactions, especially those occurring late in the year, can often have an unexpected tax impact. Examples include year-end and holiday bonuses, stock dividends, capital gain distributions from mutual funds and stocks, bonds, real estate or other property sold at a profit.

For anyone at risk for a tax-time surprise, making an estimated tax payment soon is the fastest and easiest solution. Form 1040-ES, available on IRS.gov, includes a useful worksheet for figuring the right amount to pay. This form also includes a quick rundown of key tax changes and the federal income tax rate schedules for 2018.

A companion publication, Publication 505, Tax Withholding and Estimated Tax, has additional details, including worksheets and examples, that can be especially helpful to those who have dividend or capital gain income, owe alternative minimum tax or self-employment tax, or have other special situations.

The fastest and easiest way to make an estimated tax payment is to do so electronically using IRS Direct Pay or the Treasury Department’s Electronic Federal Tax Payment System (EFTPS). For information on other payment options, visit IRS.gov/payments. If paying by check, be sure to make the check payable to the “United States Treasury.”

Though it’s too early to file a 2018 return, it’s never too early to get ready for the tax-filing season ahead. Though a good idea any year, starting early is a particularly good idea this year, when most tax filers will face revised tax rates and an altered array of deductions and credits.

To help anyone wishing to sketch out their return early, the IRS has already posted the 2018 Form 1040 and its instructions. Many supplemental forms and schedules have also been posted and others are being added every day.

Two other useful resources are Publication 5307, Tax Reform: Basics for Individuals and Families, and Publication 5318, Tax Reform What’s New for Your Business. For other tips and resources, check out the Get Ready page on IRS.gov.

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Tax reform legislation passed in December 2017 affects almost every taxpayer. The IRS is working closely with partners in the tax return preparation and tax software industries to prepare for tax reform affecting tax year 2018. This ongoing collaboration ensures that taxpayers can continue to rely on the IRS, tax professionals and tax software programs when it’s time to file their returns.

As people prepare to file their 2018 tax returns in 2019, they can visit IRS.gov for answers to their questions about tax reform. Here are several of the resources that will help taxpayers find out how this law affects them:

Tax reform provisions that affect individuals

This is the main tax reform page with information for individual taxpayers. It includes dozens of links to more information on topics from withholding and tax credits to deductions and savings plans.

Tax Reform Basics for Individuals and Families

This publication provides information to help individual taxpayers understand the Tax Cuts and Jobs Act and how to comply with federal tax return filing requirements.

Tax reform resources

On this page, taxpayers can find helpful products including news releases, tax reform tax tips, revenue procedures, fact sheets, FAQs and drop-in articles.

Steps to Take Now to Get a Jump on Next Year’s Taxes

This page has dozens of resources and tools that people can visit now or any time before they file their 2018 tax returns.

Paycheck Checkup

This page has information for people doing a Paycheck Checkup to see if they’re withholding the right amount of tax from their paychecks. Taxpayers can perform a Paycheck Checkup at the beginning of 2019 to make sure their withholding is correct for the rest of the year.

IRS Withholding Calculator

One way in which taxpayers can do a Paycheck Checkup is to use the Withholding Calculator. Checking withholding can help taxpayers protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time.

Taxpayer Advocate

The Taxpayer Advocate Service’s Tax Reform Changes website, available in English and Spanish, explains what is changing and what is not this year for individuals. Its interactive information can be reviewed by tax topic or line by line using a Form 1040 example and is updated to show the new 2018 Form 1040 references.

Tax reform

The main tax reform webpage on IRS.gov features information for individuals, but also takes users directly to info for people who are self-employed. It is also a great resource for anyone who does taxes or accounting for a business or charity.

Share this tip on social media — #IRSTaxTip: Individuals can find answers to their questions about tax reform on IRS.gov. https://go.usa.gov/xE35V.

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WASHINGTON — The Internal Revenue Service issued proposed regulationstoday on foreign tax credits for businesses and individuals.

The 2017 Tax Cuts and Jobs Act (TCJA), legislation passed in December 2017, made major changes to the way the U.S. taxes foreign activities. Significant new provisions include a dividends-received deduction for dividends from foreign subsidiaries and the addition of Global Intangible Low-Taxed Income rules, which subject to current U.S. taxation certain foreign earnings that would have been deferred under previous law.

The TCJA also modified the foreign tax credit rules, which allow U.S. taxpayers to offset their taxes by the amount of foreign income taxes paid or accrued, in several important ways to reflect the new international tax rules. These changes include repeal of rules for computing deemed-paid foreign tax credits on dividends on the basis of foreign subsidiaries’ cumulative pools of earnings and foreign taxes, and the addition of two separate foreign tax credit limitation categories for foreign branch income and amounts includible under the new Global Intangible Low-Taxed Income provisions. The TCJA also modified how taxable income is calculated for the foreign tax credit limitation by disregarding certain expenses related to income eligible for the dividends-received deduction and repealing the use of the fair market value method for allocating interest expense. The new foreign tax credit rules apply to 2018 and future years.

Treasury and IRS welcome public comments on these proposed regulations. For details on submitting comments, see the proposed regulations.

Updates on the implementation of the TCJA can be found on the Tax Reform page of IRS.gov.

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Many people claim the child tax credit to help offset the cost of raising children. Tax reform legislation enacted last year made changes to that credit. Here are some important things for taxpayers to know about the changes to the credit.

• Credit amount. The new law increases the child tax credit from $1,000 to $2,000. Eligibility for the credit has not changed. As in past years, the credit applies if all of these apply:
  • the child is younger than 17 at the end of the tax year, December 31, 2018
  • the taxpayer claims the child as a dependent
  • the child lives with the taxpayer for at least six months of the year
• Credit refunds. The credit is refundable, now up to $1,400. If a taxpayer doesn’t owe any tax before claiming the credit, they will receive up to $1,400 as part of their refund.
• Earned income threshold. The income threshold to claim the credit has been lowered to $2,500 per family. This means a family must earn a minimum of $2,500 to claim the credit.
• Phaseout. The income threshold at which the child tax credit begins to phase out is increased to $200,000, or $400,000 if married filing jointly. This means that more families with children younger than 17 qualify for the larger credit.

Dependents who can’t be claimed for the child tax credit may still qualify the taxpayer for the credit for other dependents.  This is a non-refundable credit of up to $500 per qualifying person. These dependents may also be dependent children who are age 17 or older at the end of 2018. It also includes parents or other qualifying relatives supported by the taxpayer.

More information:

• Publication 972, Child Tax Credit
• Withholding Calculator Frequently Asked Questions
• Tax Withholding
• Tax Reform page on IRS.gov

Share this tip on social media — #IRSTaxTip: What’s new with the child tax credit after tax reform. https://go.usa.gov/xPAMy

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After last year’s tax reform legislation, some S corporations may choose to revoke their S election to be a C corporation because of the new, flat 21-percent C corporation tax rate. Before taking any action, S corporations should consult their tax advisors.

S Corporations and C Corporations are among the types of business structures. A C corporation is taxed on its earnings, and then the shareholder is taxed when earnings are distributed as dividends. S corporations elect to pass corporate income, losses, deductions and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the pass-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.

The Tax Cuts and Jobs Act includes two changes that affect a corporation’s revocation of an S election to be a C corporation:

• The corporation should report net adjustments attributable to the revocation over six years. For more information see Revenue Procedure 2018-44.
• Distributions of cash following the post-termination transition period may be treated as coming out of the corporation’s accumulated adjustments account and accumulated earnings and profits proportionally resulting in part of the distributions being non-dividend distributions from the C corporation. The non-dividend distributions may not be subject to tax at the shareholder level if the shareholder has sufficient stock basis. Additional guidance will be coming.

These law changes only apply to a C corporation that:

• Was an S corporation on December 21, 2017,
• Revokes its S corporation election after December 21, 2017, but before December 22, 2019, and
• Has the same owners of stock in identical proportions on the date of revocation and on December 22, 2017.

For more information, see the Corporate Methods of Accounting topic on the Tax Reform – Businesses page.

Additional resources:
Tax Reform Business Comparison page

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