With significant changes occurring from the Tax Cuts and Jobs Act of 2017, the general consensus was that taxes would go down and refunds would go up. Did this happen for you?
For a majority of 2018 taxpayers, the total tax did go down; mainly a result of lower tax brackets, increased standard deductions, pass-through business deductions, and/or AMT changes. However, for those W-2 employees that pay income taxes through withholdings on their paycheck, the refund may have been much less than anticipated. This can be a difficult pill to swallow for those taxpayers that rely on their refund to pay for vacations, pay down debt, or pay for big projects.
What is the main reason for the lower refunds? New withholding tables.
As part of the Tax Cuts and Jobs Act, the IRS and Treasury adjusted the tax withholding tables to reflect the major changes from the new law. These withholding tables are guidelines that your employer follows to deduct an accurate amount of income tax from your paycheck. For some, these changes resulted in withholding much less in 2018. The increased take-home pay may be unnoticeable throughout the year, but it quickly becomes noticeable for those taxpayers who received a much lower refund or even owed tax this year.
For those taxpayers directly affected by the above, use 2018 as a guide to plan for 2019. Be sure to review your paystub to ensure that there is enough income tax withheld each pay period. The IRS provides a Withholding Calculator to help you determine a correct amount to withhold.
If you or your tax advisor determines that you need to withhold more during the year, you can:
Complete a new Form W-4, Employee’s Withholding Allowance Certificate, and submit to your employer
Make additional or estimated tax payments to the IRS throughout the year