This year’s tax season was one of angst and anger.
Many folks were distraught that they owed the IRS money. Others were disappointed that their refunds were significantly less than in previous years.
Many people were not happy with the changes ushered in under the 2017 Tax Cuts and Jobs Act. Although the law nearly doubled the standard deduction, it also removed personal exemptions and limited or discontinued other popular deductions. For instance, the total combined deduction for sales, property, state and local taxes is now limited to $10,000 (or $5,000 if married and filing separately).
Just before this past April’s tax deadline, a Gallup poll found that 43% of Americans weren’t sure how the new law would affect their taxes.
Under the new tax law, the Department of the Treasury was tasked with establishing new federal tax-withholding tables, which are published by the IRS. Employers use the tables to determine how much tax to withhold from an employee’s paycheck.
IRS did issue revised withholding tables in early 2018, but because the tax cuts were spread out in people’s paychecks over the year — in amounts apparently not significant enough for them to notice — many folks were shocked at the bottom line of their tax return. The hashtag #TaxScamStories trended on Twitter at one point.
The IRS issued a number of warnings ahead of April 15 deadline, recommending taxpayers check their withholdings to avoid a tax surprise. Millions of workers set their withholdings so that they get money back at tax time.
They know their employer is sending too much money to Uncle Sam, and they like it that way. As I’ve argued before, the goal should be to have your withholdings match your actual tax obligation as closely as possible. But people love getting refunds, and many use them as a savings plan of sorts.
Whether you want a big refund or simply wish to avoid the shock of another unexpectedly high tax bill, do yourself a favor and do a paycheck checkup. The IRS just made this a much easier process. It updated its withholding calculator by launching a user-friendlier tool called the “Tax Withholding Estimator.” You’ll find it at irs.gov.
The estimator can help you figure out how much should be withheld from your paycheck. Use the result to submit a new W-4 Employee’s Withholding Allowance Certificate if needed.
“If you got a tax-time surprise this year, take time now to avoid another one next year,” said Eric Smith, an IRS spokesman.
The U.S. has a pay as you go tax system, meaning anyone with income is required to pay federal income tax due throughout the year as the money is earned. Wage earners and salaried employees have their taxes withheld from their pay by their employers. The amount your employer withholds is based on the number of allowances you claim on your W-4. Allowances are based on your anticipated tax deductions (mortgage interest, charitable gifts, deductible medical expenses, etc.). If your tax situation changes — you get married, have a child or purchase a home — you should recalculate your withholdings.
To use the IRS withholding estimator, you’ll need your most recent pay stubs, a copy of your most recent federal tax return and any information about deductions or credits you expect to take next year. If you’re married and file a joint return, you’ll need the pay stub information for your spouse as well.
You can also use the withholding tool if you’re a retiree, self-employed, receive a pension, Social Security income or unemployment compensation. Depending on how you answer certain questions about the source of your income, the tool will tailor various prompts to determine your specific federal tax obligation.
The mobile-friendly online form is completely anonymous. You are not asked to provide any personal data such as your Social Security number, address or bank account numbers.
It took me about 20 minutes to go through the estimator. As I was answering some questions, I realized I made a mistake but I didn’t have to start over. The tool makes it easy for you to circle back to change your answers.
Once you’re done putting in the necessary information, the estimator will suggest a number of allowances you should put down on your W-4. Then you’re given an option. You can adjust your withholdings to get a refund come tax time or make sure the tax amount due is close to zero.
The agency’s new estimator makes it easy to get your withholding right. And even though we’re more than halfway through the year, it’s still a perfect time to do a paycheck checkup.
— Washington Post Writers Group