April 15, tax filing day, has come and gone for the 2018 tax year—and many taxpayers are confused or angered by a smaller-than-expected refund (or, even worse, a surprise balance due!).
These taxpayers are rightfully confused—many rightfully ask:
If the new Tax Cuts & Jobs Act was a tax cut, then why am I not getting a bigger refund than ever?
The problem is likely an issue with your withholding—while most taxpayers did pay less tax in 2018 than they did in 2017, the Department of the Treasury automatically adjusted withholding charts to withhold less tax from each taxpayer’s paycheck.
Many taxpayers did not account for this decrease in prepayments made throughout the year, and in some cases, it caused some very unwelcome surprises. This is especially true for those taxpayers who may not have taken certain other tax changes (limitations to itemized deductions, e.g.) into account as well.
The Bad News: 2019 Could Be Even Worse!
This is true because while the Treasury Department did not institute the withholding changes until part of the way through 2018 (meaning that taxpayers paid a higher rate of withholding for part of 2018), the new withholding rate imposed in 2018 will be in effect for a full year.
If this sounds like your situation in 2018, you should strongly consider adjusting your withholding immediately. We have already completed the First Quarter (Q1) of the calendar year, and some employers and payroll servicers take multiple pay periods to update withholding.
Don’t earn wages? Have other nonwage income?
The advice above, relating to wage withholding, also applies to withholding on pensions and bonuses, because the Department of the Treasury dropped the withholding rate for pensions and bonuses in the same way it did for wages.
Many taxpayers did not properly account for these adjustments to the various withholding rates in 2018. These changes will be applied to the full year in 2019, so it is essential to make any adjustments now, to avoid a nasty surprise in April 2020!
We at Cardin & Company are happy to help determine your estimated 2019 tax liability, and will be happy to help you determine a proper rate of withholding for your particular circumstances. A little bit of planning goes a long way!