Tax Day is upon us. For those who have completed and filed their tax returns, it may be a good idea to take a moment to review withholdings for 2019.
I just finished taxes. Why do I need to review my withholdings? The Internal Revenue Service (IRS) requires taxpayers to make regular tax payments throughout the year. A failure to do so can result in more than just one large tax bill at the end of the year — it can also lead to penalties.
The Tax Cuts and Jobs Act (TCJA) changed the way taxpayers are taxed. In many cases, this led to a lower tax obligation. The IRS provided new withholding guidance to employers to help taxpayers adjust their tax withholdings to account for these changes. Many employers applied these new guidelines.
Unfortunately, the changes did not work as planned. Employees who did not follow through and review withholding forms did not see tax savings. As a result, although employees may have had a lower tax obligation they still ended up with a big tax bill.
Who should review their withholdings? Taxpayers can reduce the risk of a surprise tax bill by regularly reviewing their withholdings and making changes as needed. As such, it is wise for everyone to review their withholding status. However, it is particularly important for anyone that was surprised by their tax filings this year.
Why would 2019 be worse? The changes were put into place in April 2018. This means they were only in effect for a portion of the year. If impacted workers do not make changes this year, they will likely have an even larger tax bill this time next year.