Adjusting Tax Withholding to Pay the Right Amount of Tax
Was your tax return not what you expected? The Tax Cuts and Jobs Act (“TCJA”) has changed some aspects of tax law including: increasing the standard deduction, eliminating personal exemptions, increasing the child tax credit, limiting or discontinuing certain deductions, and changing the tax rates and brackets. Checking withholdings every year can help avoid receiving an unexpected return. According to the IRS, the average refund amount was $2,700. Many taxpayers received an unexpected refund after the changes to tax law, meaning they paid too much or too little over the year. If the refund was larger than expected the taxpayer could have been seeing larger paychecks throughout the year. While it is nice receiving a larger refund than expected, there are also some downsides.
Paychecks are consistent with definite dates, unlike tax refunds. Tax refunds will come to the taxpayer, but without a specific, certain date. Having that money consistently rather than overpaying on taxes throughout the year can help consumers vastly when it comes to budgeting and even saving that money. A basic savings account may allow some of the money that went to overpaying taxes to accumulate interest, rather than sit with the IRS until tax refunds are sent out. Investing in yourself is always a wise decision.
To adjust your withholding, a helpful tool is the IRS Withholding Calculator online. This calculator will not request any personal identifying information and will not record the calculation, ensuring security and anonymity. After you have found the correct withholding amount, submit an updated W-4 form to your employer. Remember the sooner, the better.