Congressional auditors have stated that approximately 30 million individuals, which makes up roughly 22 percent of the United States tax paying population, will need additional money to pay their taxes in April, due to too little being withheld by their employers from their paychecks under the new tax law.
Earlier this year, the government designed new tax withholding tables for employers, resulting in approximately 30 million employed individuals receiving paychecks that did not have enough money withheld. This created larger paychecks in 2018, but will inevitably create a bigger tax bill in April 2019 as well, according to the report put out by the Office of Government Accountability–GOA. The IRS and the Treasury Department have a shared responsibility of updating the tax withholding tables on an annual basis.
The bigger tax bill expected for this group of taxpayers stems from the new tax law which limits or even eliminates numerous itemized deductions, including new limits on local and state tax deductions, commonly referred to as “SALT deductions.” Additionally, the law contains new restrictions on amounts a person can deduct for mortgage interest and eliminates job-related expense deductions.
Those with a high probability of owing taxes include individuals who itemize deductions. The GAO closely scrutinized this group and offered more clarity regarding who is included. In specific, married taxpayers with an income of $180,000 per year or more, with two children under 17 years of age, and who have $20,000 or more in additional income from sources other than employment will likely have to pay more taxes in April.
The Internal Revenue Service suggests that itemizing taxpayers implement a plan in advance to avoid a nasty surprise in the form of a bigger tax bill next year. Tax experts recommend that all filers avail themselves of the tax withholding calculator available online to make sure the appropriate amounts are being withheld from their paychecks. The withholding calculator has been available since February 2018. Taxpaying citizens are also encouraged to update their W-4 forms to reflect proper withholdings based on the new tax laws.
The IRS has consistently stated that the new withholding tables will provide taxpayers with appropriate withholding amounts if their tax paying circumstances are relatively simple. However, experts say that individuals still planning to itemize under the new law, or who have complicated tax situations or large families should take a closer look or seek the advice of an accountant or financial planner.
The GAO’s assessment came as news was released about the possibility of the Trump Administration bypassing Congress to provide large tax breaks to wealthy citizens by lowering capital gains taxes. The Administration said a decision has not yet been made with regard to whether or not Trump will proceed with this plan.
It is essential that taxpayers learn about how the laws will affect their individual situation, as penalties or an unexpected tax bill is something all citizens wish to avoid. The IRS has stated that completing a checkup now based on the new withholding tables is the best way to ensure any necessary changes are made in a timely manner.
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