Will Insufficient Withholding Force You to Pay in 2019?

Blame it on immediate gratification. It’s tempting to hold onto your cash throughout the year and worry about paying the piper at tax time. But according to a recent report, insufficient withholding in 2018 will force many taxpayers to pull out their checkbooks in 2019.

If you’ve been following our blog you’ve noticed we’ve spent a significant amount of time discussing new tax laws and the effects they are going to have on all taxpayers—especially business owners. Pay attention to the changes and act now to avoid digging your business into a hole. Next tax season will be too late.

In addition to new tax rates, the TJCA made serious changes to itemized deductions you may have normally claimed on a Schedule A tax form. There are now limits on deductions for state and local taxes.

For homeowners, the new law imposes a lower dollar limit on mortgages qualifying for the home mortgage interest deduction.

There’s now a cap on the amount you can borrow for home mortgage interest. Since the beginning of this year, taxpayers are only allowed to deduct interest on $750,000 of qualified residence loans.

If you’re used to claiming deductions for certain job-related expenses, changes there, too, might affect your outcome on this year’s tax bill. Know what they are now, because you can’t go back in time.

Contact one of our tax professionals for help in plugging your current tax data into the withholding calculator on the IRS website. They’ll help you do a “paycheck check up” to avoid any surprises next year.


Is a Check up Enough?

A check up is helpful, but is it enough? Probably not. Resist the urge for immediate gratification and take additional steps to protect yourself. If you have employees, be sure they have this information, too.

Although employers are required to withhold income taxes, employees are permitted to exclude part of their pay from withholding. Typically, completing a form W-4 will help determine how much federal tax to withhold. If too much is withheld, the taxpayer is due a refund. Everyone can figure out what to do in that case. (Cha-ching!)

If too little is withheld, however, troubles can mount for the taxpayer, who may or may not be able to handle the tax bill. The solution is to maintain balance as well as you can.

The IRS is lending a hand. The agency responded to the new tax rates by publishing new withholding tables along with a new form W-4. The GAO conducted a performance audit from February to July to measure how everything was working together.

Guess what they discovered?

The results of the audit indicated that taxpayers and employers are likely not withholding properly. Are they withholding too little? Actually it’s the other way around. Encouraged by the feds in an effort to decrease the amount of noncompliance among taxpayers, most taxpayers over-withhold.


What Happened Last Tax Season?

The IRS processed more than 135 million individual tax returns. Extensions were not included in this figure. They issued refunds to about 75 percent of taxpayers (over 102 million). Those same figures would have held for 2018, were it not for the new tax laws.

The GAO expects we’ll see an increase in the percentage of tax returns with wages over-withheld and a decrease in the percentage of taxpayers with under-withhold taxes. They don’t expect to see much change in taxpayers withholding accurately.

Statistically speaking, an estimated 32 million taxpayers will owe tax next year. That’s 21 percent of the more than 150 million taxpayers— with both timely filing and extensions—expected to file.

For more information, either for yourself or your employees, please contact one of our tax professionals.


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