Many taxpayers were surprised to learn they were getting a smaller refund than in prior years – or worse, that they owed money – when they filed their 2018 tax returns.
And while it may have seemed like they were getting back less money than they had in the past, most taxpayers actually paid less in taxes in 2018 than they did in 2017.
That’s because the IRS updated the Federal withholding tax tables in January 2018 based upon tax cuts in the new tax law. The change effectively gave everyone their tax refunds early by withholding less from paychecks, which resulted in lower refunds at the end of the year.
If you like getting a refund, you need to change your withholdings as soon as possible so you will have more paid in by the end of the year. Since it’s already June, however, remember you will only see half the impact of withholdings changes on your 2019 tax return.
Keep in mind, too, that a refund means you have given the government an interest free-loan.
That said, many taxpayers use their tax refund as a savings account, because they know they tend to spend the money they receive in their paychecks.
There are other ways to save as well. Many employers offer other opportunities to transfer money to a savings account via payroll deduction, so you never see the money. And if you choose an interest-bearing savings account, your money will grow faster than if you “loan” it to the government on an interest-free basis. Be sure to consider all of your options for savings and adjust your withholdings accordingly.
If you need to save more money, take action now one way or another. Change your Federal withholdings, or set up a payroll deduction to a savings or other account.
Before you change your withholdings, consider consulting with a certified public accountant because every taxpayer’s situation is different. Here’s an example: If you receive paychecks biweekly (every two weeks) and asked your employer to deduct an additional $50 per paycheck, you would pay in an additional $1,300 over the course of a year. Put another way, you would increase your refund by the same amount: $1,300. But remember, you would only see half of that for your 2019 return, or approximately $650, since the year is half over.
If you would like some help adjusting your payroll withholdings or learning how to maximize your earnings, please contact Lorne Meinershagen, CPA,
at Floyd, Meinershagen & Co. (FMC):
816-847-0536 or email@example.com.