With the biggest tax changes in over 30 years, the Tax Cuts and Jobs Act of 2017 (TCJA) brings a terrifying prospect for millions of Americas. The Government Accountability Office (GAO) recently issued a report warning that this new tax bill will make millions of taxpayers owe on their 2018 tax returns. Many of these taxpayers have never owed before, so it’s bound to be an unpleasant surprise.
Under the TCJA, many taxpayers will either under-withhold on their paychecks or underpay on their estimated tax payments. Across the country, CPAs are working hard to make sure that their clients will not owe on their tax returns next year. But the truth is, most employees currently lack correct withholding or have assumed that the W-4 they filed 5 years ago is still correct.
So, if you haven’t updated your W4 or reviewed your withholding, you may have an unwanted tax surprise coming in the new year.
What has the new tax bill changed?
The new tax bill has changed quite a bit since going into effect on Jan. 1, 2018. It has:
- Increased the standard deduction
- Removed personal exemptions
- Increased the child tax credit
- Limited or discontinued certain deductions
- Changed the tax rates and brackets
- Introduced a new 20 percent deduction for qualified business income
- Reduced the corporate tax rate from 35 to 21 percent
- Increased the interest rate on underpayment of taxes from 3 to 5 percent
And with all these changes, you need to know where you stand before it’s too late to make changes.
Who will be most affected by these changes?
If you fall into one or more of the following categories, you’ll want to make sure you get a paycheck checkup:
- Are a two-income family
- Work two or more jobs at the same time
- Only work for part of the year
- Have children and claim credits such as child tax credit
- Have older dependents, including children who are 17 or older
- Have changed personal circumstances (e.g., got married, moved, etc.)
- Itemized deductions on your 2017 return
- Received large tax refunds or had large tax bills for 2017
- Earn high incomes and have a complex tax return
If any of these categories above apply to you, you’ll want to take immediate action to ensure you’re not negatively affected by the new tax bill.
And if you own a business, you’ll want to have an expert review your business structure to ensure you are enjoying the new positive, business-specific changes from the tax reform.
What can I do to make sure I don’t owe?
Don’t wait! You’ll want to make sure you get a paycheck checkup, especially if you fall into any of the categories above. You still have time to adjust your withholdings or increase your estimated tax payments to make sure you’re covered in 2019.
The longer you wait to make these adjustments, the more likely it is that you’ll owe next year. If you owe this year, you may owe even more than you ever have before, especially with the increased interest rate on underpayment of taxes. So, contact a tax professional today to avoid any unpleasant surprises from the new tax bill come filing time.