If You Aren’t Alert And Active In Planning Your Taxes From Now, You Might Be In For A Massive Shock In April 2019!
Ever since the Tax Cuts and Jobs Act went official, it has been on the news and rightly so. The federal tax reform has so far had a major impact on a number of tax-related matters in the US. In lieu of this experts warn that if you’re not up-to-date with how the federal tax reform is affecting your withholding, deductions, savings, retirement plans, refunds and so on, you’re in for a big shock in 2019.
The real concern of taxpayers post-TCJA should be the withholding amount from their paychecks. Although the federal tax reform has brought about one significant benefit – lower tax rates – due to which many taxpayers have been able to take home bigger paychecks this tax year (2018), it is not going to be the same for the tax year 2019.
Due to this reason, the IRS has been encouraging taxpayers to consider taking a ‘Paycheck Checkup’ right now in order to avoid any unsavory consequences during tax season. While many taxpayers are against having too much money withheld from their paycheck, they don’t realize that “underwithholding” could mean that they would owe more money in taxes to the IRS. also, if you think that just because you have bigger paychecks and hence, you’ll get bigger tax refunds, you’re wrong.
Tax experts maintain that a combination of bigger paychecks and smaller deductions could not only eliminate the chances of you receiving a refund, but it would cause you to owe a huge sum of money in the upcoming tax season.
The federal tax reform not only reduced the income tax rate brackets but it also set a higher ceiling for standard deductions while eliminating certain deductions like personal exemptions. Apart from this, the federal tax reform has also severely limited the deduction amounts for real estate and state/local taxes.
Laura Nickolay, Senior Tax Associate at White Oaks Wealth Advisors, Inc., states:
“People aren’t understanding the gravity of the deductions… they are going to be frustrated because they are not going to get more [government services], but they have to pay more in taxes.”
Who Should Go An Extra Mile For A Paycheck Checkup?
According to the IRS, individuals who need to review their withholding amount are:
- Two-income families/households with high incomes,
- Families with dependents (both the elderly as well as children above 17 years of age),
- Taxpayers who itemized their deductions in 2017,
- Families/individuals who claim tax credits like the CTC (child tax credit).
- Homeowners who reside in high property tax states, and,
- Individuals with complex tax returns.
This shouldn’t be very difficult considering that all taxpayers can now easily determine their estimated tax bill with the help of the IRS Withholding Calculator.
The Impact On State And Local Taxes
The impact of the Tax Cuts and Jobs Act is not constrained to the federal level only but it also has a considerable bearing on state and local tax laws. The thing is that state and local tax laws are heavily reliant on and are shaped by the federal tax law to determine and define how their residents will calculate their state/local income taxes. Now that the federal tax reform has paved way for numerous changes, it is obvious that both state and local tax laws too would require a major renovation to keep up with the federal tax norms.
Different states use different approaches to make sure their tax laws are in adherence to the federal tax norms. While in some states the change is ‘automatic’ meaning that the state offers specific references to the relevant and current federal law, some states require changes to be incorporated and authorized by state lawmakers. This becomes extra strenuous during major tax law changes such as the TCJA.
Thus, although at the federal level the change might be relatively balanced, the change and impact of the federal tax reform on the state level will differ from state to state. This makes it all the more important for taxpayers to be well-versed with both the federal as well as their state/local tax laws to determine what they owe in taxes and what should be their withholding amount.
All this talk about federal and state tax laws and withholding amounts confusing you? Talk to our experts to clarify your doubts! You can write to us at firstname.lastname@example.org or call us at 1-(888)-482-0279.