Here’s another reason to revisit your tax withholding: Just over 2 out of 10 taxpayers will owe the IRS next year.
Those were the findings from a report by the Government Accountability Office (GAO), a legislative agency that provides data to Congress. That amounts to approximately 30 million people.
On the other hand, about 73 percent of taxpayers will be overwithheld — that is, they will pay too much to the Internal Revenue Service during 2018 — and receive a refund next year, the GAO found.
Earlier this year, the U.S. Treasury Department and the IRS released new withholding tables to reflect the new Tax Cuts and Jobs Act.
Changes stemming from the new law include the end of personal exemptions, the doubling of the standard deduction, and lower individual income tax rates.
The withholding tables are guidelines your employer follows in order to deduct the appropriate amount of income taxes from your paycheck.
They also work with Form W-4, which you can use to tailor the taxes withheld from your pay.
The GAO also found that under the old tax law, 18 percent of taxpayers — roughly 27 million people — would have been underwithheld.
Here’s how to review your pay stub and head off a surprise tax bill from the IRS in 2019.
Reviewing your W-4 is a good practice in any tax year. If not enough is withheld, you’ll owe money come tax time. Pay too much, and you end up with a large refund.
The IRS released an updated version of its withholding calculator to help taxpayers figure out how much to have deducted from each paycheck. You may also want to cross-check that number with your CPA or tax preparer to make sure it’s best suited for you.
“You may have different circumstances now compared to when you started working at your employer,” said Melissa Labant, director of tax policy and advocacy at the American Institute of Certified Public Accountants.
Major life changes, including having a child or getting married, may warrant an update to your withholding.
For reference, here are the new income tax brackets for married couples.
In the past, it may have made sense for people who itemize deductions to claim more allowances on their W-4 and have less tax withheld.
This 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 who file jointly.
About 49 million taxpayers — 28 percent of filers — itemize, according to the Urban-Brookings Tax Policy Center.
Now that the standard deduction has doubled, filers who once itemized may no longer do so. That means they may not claim as many allowances on their W-4.
Also, the Tax Cuts and Jobs Act does away with personal and dependent exemptions and broadens the applicability of the child tax credit to include higher-income households.
“Given the changes in the tax code, it’s a good time to look at your W-4,” Labant said. “You don’t want any surprises, especially when that surprise is a large balance due come tax time.”
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