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The tax reform came into effect during the 2018 tax year and, now that the tax season has arrived, millions of Americans are hoping to save on their tax bills. However, early indications show that the amount of repayments is on average lower than in previous years, and many taxpayers complain that the tax reform has not kept its promises of lower taxes.
It's easy to blame the federal government for reducing repayments, and the IRS is used to receiving complaints. But in this situation, the real blame rests with taxpayers who did not understand that the massive changes in tax legislation might make it worthwhile to reconsider their own role in determining the amount of their refunds – by examining their withholding.
Source of the image: Getty Images.
The size of the problem
The latest figures from the IRS show that the average refund of tax so far this year is $ 1,865. This may seem like a lot, but it is lower than the typical $ 2,035 refund that taxpayers got at the same time as the previous tax season. In addition, the IRS has issued only about three quarters of the number of refunds it had in early 2018 for the 2017 tax year.
For the vast majority of people, the main factor determining the size of your tax refund depends on the amount of money withheld on your paychecks during the year. If you have a lot of deductions, your refund will be bigger. If you have less, your refund will go down or you may have to pay taxes at the end of the year.
It is true that the government is responsible for publishing the payroll deduction tables, and these tables have in fact been modified as a result of the tax reform. But the changes to the tables represent only half of what has changed the withholding amounts – because you still have the power to file Form W-4 with your employer. When major changes occur – whether they are specific to your personal life or of a more general nature – forgetting to file a new W-4 involves the type of unexpected change you are currently experiencing in the amount of your refund.
The limits of the restraint tables – and how the W-4 form can help
The W-4 form is also known as the employee's Allowance Allowance Certificate. Although it is short, it provides essential information to your employer and the IRS. Leaving you select the number of source deductions to claim and the appropriate production status for your return. Form W-4 tells your employer how to use the IRS source deduction tables to determine the amount to withdraw from each paycheck to pay your federal tax. bill.
At first glance, the W-4 form seems simple to use. But things get complicated in a hurry, because to use the form correctly, you have to fill in the spreadsheets that go with it. In particular, two main worksheets deal with withholding tax: one covering joint filers in which both spouses work and one dealing with deductions, credits and other tax breaks. When something changes in your tax situation, it is important to update your W-4 withholding tax, otherwise the incorrect amount will be withheld in the future.
What happened to millions of taxpayers, is that they do not have update their W-4 forms. Instead, they left their withholding allowances unchanged – even in the face of changes in tax legislation that, in many cases, hurt them from a tax perspective. Among those who said their repayments had decreased, many pointed to factors such as limiting local and national tax deductions, eliminating various itemized deductions, as well as changes in size and amount of money. eligibility for other tax benefits. If you run these changes in W-4 spreadsheets, the form suggests you reduce your withholding allowances and allow the IRS to increase the withheld amount of your paychecks.
How to change your detention?
It is too late to do anything about the 2018 tax year, but if you are having problems with your refund, changing the withholding tax deductions in 2019 could be a good idea. prove the smartest solution you can take. Running the numbers to see how the tax law changes affect the number of withholding allowances that you must claim could give back to your repayment the amount of your repayment to what you would typically expect.
Tax reform has had different effects on total tax liabilities for different taxpayers. But even if your tax bill went down, your tax refund might be less important – if your employer withheld less tax and thus increased the size of your pay check during the year. year. This is not necessarily a bad thing if you are prepared for it, but if you are not satisfied, fill out a new W-4 form with your employer and make sure that it accurately reflects your tax situation for 2019 and the following years.
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