Thursday, February 07, 2019
Render unto Caesar
The Tax Cuts and Jobs Act made changes to the income tax laws designed to lower our overall tax bill. But the government didn't want to wait until the 2019 filing season (for calendar 2018, the year the TCJA took effect) for all that lovely extra spending money to flow into the economy. So in January, 2018, they adjusted the withholding tax tables to reflect the change in the tax law.
There was much rejoicing when people found their net pay go up, as the taxes withheld went down to reflect the law change.
Only now it is time to pay the piper.
The withholding tables - and the amounts withheld for taxes from your paycheck - are only estimates. Until you actually prepare your taxes, you don't know what your exact tax bill is, and whether or not your withholding will cover it. And sometimes, the people who create those tables estimate wrong.
Case in point: Fast forward to this last weekend, when I finally had all the information ready to prepare my taxes. I had already increased my Federal withholding in August, having done a quick projection that showed I may be short on withholding.
Sure enough, this year, for the first time in decades, I ended up owing Uncle Sam about $350.
I am certain there will be people who will scream that the TCJA was a lie, because they are getting a much smaller refund or actually owe on their return.
They are wrong, and apparently have zero understanding of the income tax process.
While I do owe, when I look at my total tax bill (actual, calculated total tax) on my 2018 return versus my 2017 return, my total tax bill decreased by almost $700. Decreasing your overall tax bill is what the TCJA was designed to do.
There are two things you need to do right away to avoid a nasty April Fool's tax surprise:
1. Prepare your taxes now. Don't wait until April. You don't have to mail them, but at least if you prepare them now, you will know what the damage may be and can plan accordingly.
2. Check your withholding. Once you have prepared your taxes, take a look at your most recent check stub. Do the math to figure out how much tax you will have withheld by the end of 2019. Compare that total to the total tax on your return (total tax, not total withheld). If it looks as if you are going to fall short, fill out a new form W-4 for your employer, increasing the amount of tax taken from your paycheck (decrease the number of withholding allowances on your form, or take the easier route and just have them deduct an extra $X per check).
End of PSA.