April 20, 2019

Shocked by Your Tax Refund? Next Year Could Be Worse Unless You Act Now

If a family was able to take the child tax credit or new qualified business income deduction, they might not have ended up owing anything, even if they could no longer deduct their state and local income taxes, Ms. Taylor said. But if they did not receive benefits from some of the newer tax breaks, “then they could be losing all the way around. Hence the high level of frustration and surprise among folks.”

Early this tax season, I.R.S. statistics showed that the average taxpayer refund was down nearly 17 percent. Things have evened out since then: As of April 5, the average refund was $2,833, down 1.1 percent from last year.

But that’s not the whole story: A million fewer taxpayers had received refunds.

Averages also gloss over what was happening in individual households across the country. In New Jersey, for example, HR Block found that, on average, its clients owed about 30 percent less in taxes than in 2017. But their refunds declined by about 6 percent, according to an analysis among customers who filed through the end of March.

Over all, HR Block said that its average taxpayer’s total liability dropped by $1,200, while refunds were up $43. Instead of substantially bigger refunds, those taxpayers received about $50 more in their biweekly paychecks starting in March 2018, for a total of $1,156 — which they may not have even noticed.

Whether or not you owed for 2018, now is the time to update your withholdings. The I.R.S. suggests performing a “paycheck checkup” annually to avoid surprises. Big life events like getting married or having a child are other reasons to go through this exercise again.

Using the I.R.S.’s withholding calculator makes it easier to fill out the W-4. TurboTax and HR Block offer similar tools. The calculator helps taxpayers estimate their 2019 income tax and compare that amount with their current withholding. That will show them whether they should have more or less money withheld from their paychecks.

The amount withheld is determined by the number of so-called allowances. The fewer allowances you claim, the more is set aside from each check. You can increase your withholdings further by specifying an additional flat dollar amount to be set aside each pay period.

Article source: https://www.nytimes.com/2019/04/14/your-money/tax-refund-paycheck-withholding.html?partner=rss&emc=rss

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