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Posted on April 22, 2019

CHECK OUT DEBBIE QUOTED IN THE NEW YORK TIMES ABOUT TAX REFUNDS ON APRIL 14, 2019

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Conor Barnes, an accountant in New York, decided to stop telling her clients to “have a nice day” at the end of their meetings. Often she delivered news that had, in fact, ruined their day: They owed the government money, sometimes a painfully large amount.

The overhaul of the tax code — the first in three decades — caused much confusion this tax season, which was only worsened by the monthlong government shutdown. Many taxpayers were upset when they found out that they owed money to the federal government, even if their tax burden was lower.

And if taxpayers don’t adjust their paycheck withholdings, next year could bring an even bigger shock.

“If they don’t go out and make a change now, they will have even less withheld in 2019, so their situation will just get worse,” said Nathan Rigney, lead tax research analyst at H&R Block’s Tax Institute.

How did it happen? New guidance from the Internal Revenue Service prompted employers to adjust workers’ paychecks last March in an attempt to match up what they would owe under the new tax plan. And in some cases — if taxpayers didn’t update the relevant withholding forms — they ended up owing money, even if their total tax liability dropped.

[Most Americans got a tax cut, a study says. Most of them don’t buy it.]

“Clients intellectually understand it when you explain it to them,” Ms. Barnes said, “but it is emotionally challenging.”

The updated tables were in effect for about nine months last year. But this year, they’ll be in effect for all 12, meaning the problem will be magnified if taxpayers don’t take action — and soon.

Withholdings are updated by filling out I.R.S. form W-4 and giving it to your human resources department, or whoever handles payroll. It’s an eye-glazing task, which may be why nearly 80 percent of filers, according to H&R Block, failed to update last year.

“Most people were taking a wait-and-see approach, as no one is dying to increase withholdings,” said Debra Taylor, an accountant and financial adviser in Franklin Lakes, N.J. “It was difficult to generalize how the new law would affect taxpayers as everyone’s situation was truly different.”

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, H&R 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, H&R 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 H&R 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.

New York Times

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