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The IRS has been warning filers all year to ensure they’re withholding enough tax from their pay in order to avoid a surprise tax bill in 2019.
Turns out, few people seem to be listening.
At least that’s the conclusion from a recent survey by Liberty Tax. The tax preparer polled 1,020 individuals online in September.
About 70 percent of participants haven’t checked their withholding — the income taxes deducted from their paychecks — in the last six months, Liberty Tax found.
Nearly half of the polled individuals said they weren’t concerned about whether they’d owe Uncle Sam next year.
They should be however.
“It’s indicative of the population,” said Brian Ashcraft, director of consumer experience at Liberty Tax. “There has been so much tax talk and we get numb to it at some point in time.”
The Tax Cuts and Jobs Act, which went into effect at the start of the year, slashed individual income tax rates, eliminated personal exemptions and roughly doubled the standard deduction.
As a result, Treasury and the IRS made updates to the tax withholding tables. These are guidelines employers use along with Form W-4 to determine how much income tax workers should withhold from each paycheck.
Nailing the right amount to withhold is an art: If you pay too much in taxes through the year, you will have made an interest free loan to the government and you’ll get a refund in the spring.
Withhold too little, and you’ll be on the hook for additional taxes in April.
Here’s what you can do, now that the year is nearly over.
Nevertheless, the Government Accountability Office estimates that about 2 in 10 taxpayers will owe the IRS in 2019. That’s equal to about 30 million people.
Though checking your withholding is generally a good practice, these payers ought to pay especially close attention:
Filers who itemize: Prior to the new tax law, it may have made sense to withhold less from your pay if you itemized deductions.
That may no longer be the case now that the standard deduction has nearly doubled to $12,000 for singles and $24,000 for married couples filing jointly. Those who itemized in the past may no longer do so going forward, so they may need to revisit their withholding.
Households with dependents: Under the old law, it may have made sense to withhold less in taxes if you had dependents.
Now, personal and dependent exemptions are out, so these filers should review their paystubs to ensure that they’re not underwithheld.
Retirees: Just because you’re no longer working, doesn’t mean that you still won’t owe. You can use Form W-4V to withhold a flat rate from your Social Security check or Form W-4P to withhold from your pension.
With fewer weeks left in the year, taxpayers who have fallen behind on withholding face a time crunch to pay what they owe.
For some filers who regularly score refunds, paying fewer taxes now may not necessarily result in a big bill next year.
Rather, it may mean that they’ll end up with smaller refunds next spring — a nasty surprise for families that were depending on the money, said Cari Weston, CPA and director of tax practice and ethics at the American Institute of CPAs.
“People aren’t always good at saving and they count on that refund,” she said. “So this really can be detrimental to them.”
Whether you will owe the IRS or receive a smaller refund, it’s best to adjust your withholding now.
If you’ll owe for 2018, make a point of setting aside additional funds so that you’re ready to pay your bill next spring.
“Now is better than never,” said Ashcraft.