The IRS issued a series of warnings over the past week, urging both workers and retirees to check their federal income tax withholding to avoid a surprise tax bill or penalty come April.
The warnings follow the release of a U.S. Government Accountability Office (GAO) analysis that found 21 percent of taxpayers will end up withholding too little from their paychecks this year. That means they will owe taxes rather than receive a refund or break even.
The GAO attributes the projected rash of taxpayers who withhold too little in part to the Tax Cuts and Jobs Act.
Many provisions of the tax reform law enacted in December take effect with the 2018 tax year — the tax return due in April 2019. And some of those provisions stand to impact whether you will owe taxes in April. They include an increased standard deduction and restrictions on other tax deductions.
How to avoid owing taxes
The IRS’ new withholding tables — issued after the enactment of the Tax Cuts and Jobs Act — are the key to avoiding surprises in the coming tax season.
The dense four-page document that is the 2018 withholding tables may look intimidating, but don’t worry. The IRS’ new withholding calculator simplifies the process of figuring out how much money you should be withholding from your taxable income after the new tax law. The federal agency is urging taxpayers — both workers and retirees — to use the calculator if they have yet to do so.
For pointers, check out the IRS’ video about the calculator.
Workers who decide to adjust their withholding after using the calculator will need to submit a new Form W-4 to their employer.
Retirees who decide to adjust their withholding should refer to “How Retirees Can Avoid a Surprise Federal Tax Penalty in 2019” for directions particular to retirement income.
What’s your take on this news? Sound off by commenting below or over on our Facebook page.