Color of Money: Were you blindsided by your 2018 taxes? The IRS has a new withholding tool that will help you pay the right amount of taxes for 2019.
WASHINGTON -- 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.