Most of the Tax Cuts and Jobs Act provisions went into effect at the beginning of 2018. Although employees felt some effects of the changes in February 2018, when the income tax withholding rates were changed, the real moment of truth comes as taxpayers start preparing and filing their 2018 tax returns now.
The Internal Revenue Service (IRS) reports on the size of refunds compared to previous years have been changing by the minute it seems. Early reports show that, as of February 1, 2019, some taxpayers were getting smaller refunds than the previous year, or even owing money. That was based on IRS statistics for approximately 10 percent of the total number of returns filed every year. But recent reports indicate the average refund amount is slightly up compared to 2017 returns.
As a result, some taxpayers are uncertain about the changes. Many have likely held off filing their returns all together because they aren’t quite sure what their outcome will be.
The good news is, no matter what your 2018 tax situation is, you can always adjust it for 2019. You may just need to do a few things differently.
My refund is smaller this year. Should I adjust my tax withholding?
Getting a smaller refund is not necessarily a bad thing. It means you had closer to the correct amount of income tax withheld throughout the year. Your total tax bill for the year is what really matters, not the size of your refund. If you are getting more in your paycheck since the laws changed, but you get a smaller refund when you file, you probably don’t need to change anything.
You may want to adjust your withholding to change your tax outcome for 2019 in some cases:
- You owed a significant amount when you filed your 2018 return.
- You may owe more income tax in 2019; for example, if you have taxable capital gains or fewer deductions.
- You count on getting a substantial refund every year, and you absolutely can’t save money any other way.
Determine the right amount to withhold
Here’s what you should know about making sure you have the right amount of income tax withheld for 2019:
Prepare your 2018 tax return as soon as possible. It’s always a good idea to file your taxes sooner rather than later. It’s most important to not wait until the last minute. And that’s especially true this year with 2018 giving the first indication of how all the new laws work together to affect your tax liability. By looking at your 2018 tax results, you can start planning better for the current year.
Estimate your 2019 taxes. Your tax withholding and the amount you receive in your paycheck all year are both too important to guess at. Don’t make big changes to your withholding based on fear or on insufficient information. It’s true that the new tax law added some challenges to figuring out how to have just the right amount withheld from your pay. However, TaxAct provides tools to make that process easier.
Your 2018 tax return gives you the first glimpse of how the new tax laws affect you, but you should still estimate this year’s return using 2019 information. That is especially true if something has changed; for example, if you added to your family or if you expect to earn more or less money this year.
The TaxAct calculator is an easy way to estimate your 2019 taxes.
Adjust your withholdings
Use TaxAct to prepare Form W-4. The easiest way to prepare Form W-4 is to let TaxAct prepare the form for you. Go to the Form-W-4 Withholding section in TaxAct (located in the Next Year tab).
You can change your tax withholding in three different ways.
- First, you can change your number of withholding allowances. More withholding allowances mean you have less tax withheld. Fewer withholding allowances result in having more tax withheld. You can claim as few as zero withholding allowances or as many allowances as you need to have the correct amount of tax withheld.
- The second way to change the amount withheld from your pay is to choose a different marital status box – if you can. If you are married, but your spouse also earns income, you can choose to check the “Married but withhold as Single” box. The “Married” box assumes your spouse earns little or no income, resulting in a lower projected tax and less income tax withheld.
- The third way to change your withholding is to have an additional dollar amount withheld from your pay. That can be useful, for example, if you need to catch up on your withholding for the year, or if you have additional income not subject to tax withholding. You can specify a certain dollar amount to have withheld in addition to regular withholding. That amount goes on Line 6 of your Form W-4.
Turn your completed Form W-4 in at work by taking it to the payroll department. Do not send Form W-4 to the IRS. Some employers allow you to submit Form W-4 online.