• 503 925 4558
What about those 2018 IRS Refunds?

What about those 2018 IRS Refunds?

We have a new tax law in town!  Early in 2018, the IRS issued new withholding tables to help account for changes in the law.  The result was that most of you saw higher paychecks and less federal taxes withheld. The Form W-4 that you file with your employer determines how much withholding you see on your paycheck.  

The 2018 withholding tables have a flaw.  The tables did not take into account the loss of the dependency exemption and reduction in itemized deductions due to the limit on state and local income taxes.  So the IRS is predicting that many taxpayers will be caught off guard when they file their 2018 return. The reduced tax withholding will mean that you might owe on your tax return, even if you usually expect a refund.  That is never a good surprise!

You are likely just getting your 2018 W-2 forms.  Take a look to see how your federal withholding compares to 2017.  That amount is listed in Box 2.

Your actual 2018 Federal tax may be less than 2017 due to lower tax rates, increased child credit amount, the increase in the standard deduction and changes to the Alternative Minimum Tax, so don’t get too worried yet.  However, you will no longer get the benefit of the exemption (which as been a $4,000 deduction for you and your dependents). You could lose the deduction for a large part of your state and local taxes. That deduction is limited to $10,000.  

The silver lining is that on Wednesday, January 16, 2019, the IRS issued Notice 2019-11 stating that they will be more lenient on the penalty they charge if you don’t pay enough of your federal taxes during the year.  I’m not sure if that really is a silver lining, but it’s worth knowing so you can plan for your tax liability and also adjust your withholdings for 2019. It is probably a good idea to get started earlier this year on those tax returns to see how it all works out for you!