A spring ritual is underway. Tens of thousands of people will soon get their tax refunds, with dreams of finally being able to afford something they’ve thought about for months.
Countless Americans struggle to gather the money to do or buy the things they desire. It’s what to expect in a country where nearly half of adults say that if they were hit with an emergency expense of $400, they wouldn’t have the cash on hand to cover it. So tax refunds become a sort of “savings account”. And this year, many are are expecting a larger refund, but they may be surprised.
According to the government, because of changes in the law most Americans received a tax cut in 2018. But that doesn’t necessarily mean more money back at tax time, in fact it could mean owing money this time around.
Some of the tax cuts of 2018 came in the form of more net pay on paychecks. New withholding tax tables from the IRS made employers adjust the amount taken out each pay period, resulting in more money in Americans paychecks, less money to Uncle Sam. For the time being. But how does that affect one’s tax bill?
It all comes out in the wash
If your take home pay increased – whether noticeable or not – even with a lower total tax bill, your refund may shrink. And depending on how much, it may send some into the amount owed category vs amount overpaid and refunded.
More than in the past, the IRS may have had employers take too little from employees last year, hence the surprise when folks are expecting larger returns. The key is to make adjustments to your withholdings to better match what you ultimately need to pay in taxes in order avoid paying the price at tax time.
The bright side
If after the IRS revised its withholding tables, you adjusted your deductions accordingly – you may end up with a larger return than last year. And of course there are the taxpayer scenarios that resulted in bigger paychecks, lower overall taxes and bigger refunds as a result of the new tax law. Until tax season wraps up, we won’t know how many people got refunds or owed, and how it all compares to last year.
This year’s tax season brought far more change than usual. If you end up owing money, you may want to increase the amount being withheld from your pay. If you get a bigger refund than usual, you may want to decrease your withholdings rather than supplying the Treasury with a free loan. And remember, tax refunds should never be treated as a savings account. There are plenty of ways to start saving money vs. relying on an unpredictable refund.
I offer a free, face-to-face consultation at my Cherry Hill, NJ office. I will provide honest answers to your questions and let you know what I can do to help you gain or regain control of your financial situation. In both the bankruptcy and real estate areas of my practice, I focus on helping my clients get through a challenging time. You can reach me by phone at 856-488-1200 or you can also contact me via form or e-mail.
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