21 percent of taxpayers – or about 30 million people – aren’t withholding enough taxes from their pay this year. Earlier this year, the IRS and Treasury changed the withholding tables to reflect the new tax law. You should review your withholding to make sure you’re on track.
Here’s another reason to revisit your tax withholding: Just over 2 in 10 taxpayers will owe money to the IRS next year. Those were the findings from a report by the Government Accountability Office, a legislative agency that provides data to Congress. The percentage amounts to about 30 million people.
On the other hand, GAO said, nearly three-quarters of taxpayers will have withheld too much during 2018 and will receive a refund next year.
Earlier this year, the Treasury Department and the IRS 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.
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 not withheld enough money.
Review your forms
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 also released an updated version of its withholding calculator to help taxpayers figure out how much to have deducted from each paycheck.
You may have different circumstances now compared to when you started working at your employer.
Major life changes, including having a child or getting married, may warrant an update to your withholding.
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 since 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.
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. You don’t want any surprises, especially when that surprise is a large balance due come tax time.
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