Nobody wants to have an unpleasant surprise when tax time comes around. Finding out you owe more money than you thought is a real bummer. That’s what can happen if you aren’t withholding the correct amount of taxes from your paychecks.
According to a new report by the Government Accountability Office, a legislative agency that provides data to Congress, just over 2 in 10 taxpayers will owe money to the IRS next year. That comes to about 30 million Americans.
On the flip side, the GAO also reports that nearly three-quarters of taxpayers will have withheld too much during 2018 and will receive a refund next year.
In addition, the recently enacted Tax Cut and Jobs Act makes it even more important for tax payers to review their withholdings this year. The Treasury Department and the IRS have already released updated 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.
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.
For these reasons it is even more important to review your W-4 this year. If not enough is withheld, you’ll owe money come tax time. Pay too much, and you end up with a large refund. Even if there weren’t any changes to tax laws it would still be a good idea to review your withholding. Things change, and people often have different circumstances in their lives compared to even the previous year. Some of these circumstances like marital status can have a significant effect on withholding.
For more information and advice on what you should be withholding this year, see a qualified tax professional.