Is Your Withholding Setting You Up for a Painful Surprise?
Is Your Withholding Setting You Up for a Painful Surprise?
It might still feel like tax time is a long ways away. But there is a very important step that everyone who receives a paycheck should take, right now. If you haven’t looked at your tax-withholding amount lately, then you really can’t afford to put it off. Here’s why. Thanks to the Tax Cut and Jobs Act (TCJA) millions of people could be facing a big surprise when they file their returns.
Check Your Withholding
The Internal Revenue Service and the Government Accountability Office (GAO) both issued warnings recently regarding the upcoming tax season. Both agencies recommended American taxpayers update their current tax withholding forms — W-4 — before the year ends. That’s because, the new tax law comes with significant changes. In addition to some big tax cuts, the TCJA has also reduced some popular deductions that millions of Americans have grown accustomed to.
Are You Overpaying?
Because of those changes both the IRS and the GAO expect most taxpayers to either overpay or underpay this year. In fact, the GAO expects about 73 percent of all Americans who pay federal income taxes to overpay because their current withholding is to high. That’s a 3 percent increase over last year. Overpayment is more likely with high-income taxpayers, especially for those who file estimates. Because high earners will see greater tax cuts under the TCJA, they could also see a notable increase in their overpayments.
Overpaying might not sound too bad because that means you get an even bigger return. However, it also means you’ve been missing out on a lot more disposable income throughout the year. If nothing else, the government has been collecting interest on money that you could’ve been collecting interest on instead.
Could You Face an Unexpected Tax Bill?
On the other end of the spectrum, the news could be more unsettling for those who are underpaying. The GAO expects 21 percent of the nation’s 138 million taxpayers to underpay. That means millions could end up with a smaller return, or even worse, an unexpected tax bill when they file in 2019. For taxpayers not expecting a big tax bill, this could put them in a real bind.
Use the Tax Withholding Calculator
So, what should you do? The good news is there is a fairly easy remedy for this problem. But people need to do it. The IRS recently announced that it “urges taxpayers who haven’t yet done a ‘Paycheck Checkup’ to take a few minutes to see if they are having the right amount of tax withholding following major changes in the tax law.” The easiest way to avoid either overpaying or underpaying is using the IRS’s tax calculator to determine how much you should be withholding from each paycheck. You can access the withholding calculator here.
Just Do it!
Add it all up and more than 90 percent of all taxpayers are likely going to either overpay or underpay this tax season. So, if you haven’t already, then now is the time to check your W-4 withholding.
We hope you found this article about “Is Your Withholding Setting You Up for a Painful Surprise?” helpful. If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page or our website at www.GROCO.com. Unfortunately, we no longer give advice to other tax professionals gratis.
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Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com. GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.
Alan L. Olsen, CPA, Wikipedia Bio
GROCO.com is a proud sponsor of The American Dreams Show.
The American Dreams show was the brainchild of Alan Olsen, CPA, MBA. It was originally created to fill a specific need; often inexperienced entrepreneurs lacked basic information about raising capital and how to successfully start a business.
Alan sincerely wanted to respond to the many requests from aspiring entrepreneurs asking for the information and introductions they needed. But he had to find a way to help in which his venture capital clients and friends would not mind.
The American Dreams show became the solution, first as a radio show and now with YouTube videos as well. Always respectful of interview guest’s time, he’s able to give access to individuals information and inspiration previously inaccessible to the first-time entrepreneurs who need it most.
They can listen to venture capitalists and successful business people explain first-hand, how they got to where they are, how to start a company, how to overcome challenges, how they see the future evolving, opportunities, work-life balance and so much more..
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