With tax season having opened up, many taxpayers are starting to express shock at the diminished size of their tax refunds. Having expected similar refunds as in years past, many taxpayers are seeing their refunds reduced, or in some cases they’re even owing the IRS money. Many are blaming President Trump, alleging that his tax cuts were just a bunch of smoke and mirrors.
What many didn’t realize about the tax cuts was that in addition to reducing the tax rates in each tax bracket, the law also made changes to withholding so that taxpayers would see less money withheld each pay period. Since many people in years past had too much money withheld and then received refunds, the average size of refunds was set to decline this year anyway.
But most taxpayers didn’t make any changes to their withholding. As you can tell from looking at the new W-4 worksheet, significant changes were made to the withholding process. Taxpayers who didn’t update their W-4s ran the risk of having too little tax withheld and thus owing the IRS come tax time. Some companies found that only 1% of their employees bothered submitting new W-4s, despite the many warnings to ensure that their W-4s were accurate.
Some people may think that the Trump tax cuts now mean that they have to pay more taxes, but what really happened is that they received more money each pay period and may have underpaid their taxes through decreased withholding. While some families may very well end up having to pay more, most families will pay less in taxes. And they can figure that out very easily not by judging the size of their refund check, but by calculating how much they paid over the course of the year (found on their W-2), plus anything they owed on their 1040 or minus any refund they received.
Remember, a tax refund isn’t a good thing. That means you’ve given the government an interest-free loan for a year and missed out on putting that money to good use yourself. Ideally you want your refund (if you have one) to be as close to zero as possible.
This article was originally posted on Red Tea News.
