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Onvio "how to" videosWithholding Enough Taxes?
Did your tax return results match your expectations? If you have read or watched news articles on what some people have experienced on the front end of this tax season, you may feel uneasy about your own tax return results as you file by April 15th. Clearly, there is a disconnect between expectations of tax reform that was billed as lowering federal income tax for most people in 2018 and the reality of seeing a smaller tax refund or a larger tax due.
What is happening? Given the same income as the year before, tax liabilities are generally lower in 2018. However, the federal government was giving that back to you in lower income tax withholdings from your wages since February. You probably noticed more in your take home pay back then and it may have felt like a raise in your wages. It is no surprise that Congress and the White House wanted to reap the goodwill of lowering taxes before the mid-term elections.
When you file your annual tax return, you are reconciling your calculated tax liability with the tax withheld from your wages or retirement distributions and any quarterly estimated tax payments you sent to the IRS. Estimating how much to withhold with the massive changes in the new Tax Cuts and Jobs Act, after it was passed in December 2017, was a difficult undertaking for the Treasury Department to accomplish in a short timeframe.
Tax refunds are a matter of great expectation for many people. Having too much tax withheld from your pay can be a forced way to save money during the year and use the refunded tax for big purchases. With interest rates on savings so low, you are not forgoing much interest income by having the government keep your money until tax filing season. Given that current tax refunds are lower than last year, the new federal income tax withholding tables probably decreased tax withholdings too much to have tax refunds match expectations.
Will the federal tax withholding tables be re-adjusted to increase income tax withheld from paychecks? Imagine the furor if that was done! If you did not receive the refund you expected and want to have a higher refund next year, you need to adjust your tax withholdings by filling out and signing a new Form W-4 soon with your employer. Reducing the number of exemptions you are claiming will increase your tax withheld from your paycheck. What if you are already at zero exemptions and claiming Single filing status, the highest withholding rate? To withhold more, you can add an additional dollar amount of federal income tax to be withheld from your pay on line 6 of the Form W-4.
As with most things in life, one’s reaction to an event is based on one’s expectation of it. If your expected federal tax refund did not match reality, ask your tax professional for advice. We like it when clients are happy with the result!