The Tax Cuts and Jobs Act of 2017 made huge changes to the U.S. Tax Code, which caught many taxpayers off-guard. You might have noticed a change in your refund from last year, and if you’re like the majority of filers who received a refund, it might have been less than the previous year. But don’t draw the wrong conclusion! It doesn’t mean that you paid more in taxes.
According to the Internal Revenue Service, the number of refunds paid in 2019 is down from the number in 2018, and the average refund is also lower. As of May 10, 2019, the IRS issued 101,590,000 refunds averaging $2,868, compared to 102,582,000 refunds in 2018 for an average amount of $2,940. If these were the only factors, you might conclude that refunds were smaller because taxes went up. In fact, the refunds are smaller because the law reduced the amount of withholdings taken out of employee paychecks. The changes in withholdings were due to the increase in the standard deduction, suspension of personal exemptions and changes in tax rates.
In some cases, these changes could mean that the filer had to pay tax because not enough tax had been taken out during the year. This can cause an uncomfortable hit in April, and it’s a situation most filers want to avoid. On the other hand, too large a refund doesn’t suit your interests either. That basically means you loaned the government money interest free.
This makes refund season a good time to perform a “paycheck checkup” You might be a disciplined saver who wants more money during the year to go into interest-bearing accounts. Or, you might have debt you’re trying to pay down. In either of these cases, you’d rather have a little more meat in your paycheck. On the other hand, if you’re a little too loose with cash, you might want a higher level of withholdings so you do get a sizeable refund that you can put towards a summer vacation, a home project, or another goal.
The IRS makes it easy to review your tax situation and adjust your withholdings, as appropriate. The agency has a withholding calculator to help you conduct your paycheck checkup. The calculator incorporates tax law changes that affect itemized deductions, such as:
- The increased child credit
- The new dependent credit
- The repeal of dependent exemptions
In addition to the changes in this year’s refund, here are the circumstances under which the IRS strongly urges you to perform a checkup:
- You adjusted your withholding in 2018, especially in the middle or later part of the year
- You owed additional tax this April
- You received a refund that was smaller or larger than expected
- You got married or divorced
- You had a child or adopted one
- You purchased a home
- You had changes in your level of income
Withholdings are not like medical coverage. You can modify your withholdings any time during the year, and even more than once, by simply submitting a new Form W-4 to your employer.
If your taxes are a bit more complex, or if you have specific questions about your eligibility for certain deductions, a knowledgeable CPA at Breon & Associates is available to help. We perform individual tax planning for our clients to help you get every benefit of the new law. Contact us today.
Contact Breon & Associates in Harrisburg
Consult Breon & Associates for knowledgeable, individualized assistance in preparation and filing. With offices in Harrisburg and North Central PA, Breon & Associates provides business, accounting and tax services throughout Pennsylvania. Call us at 1-888-516-8476 or 717-273-8626, or contact one of our offices online to schedule an appointment.
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Harrisburg, PA 17101
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Camp Hill, PA 17011
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Ephrata, PA 17522
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Wyomissing, PA 19610