If you failed to withhold enough tax in 2018, the IRS has a nasty surprise for you
We're only in the second week of tax season — and some filers are already in for a nasty surprise from the IRS.
This spring marks the first time taxpayers are submitting returns under the Tax Cuts and Jobs Act, which went into effect in last year.
Though the 2018 filing season only started on Jan. 28, some early filers are discovering that they either owe the IRS or they'll be getting a smaller-than-expected refund from the taxman.
About 30 million people, or 21 percent of U.S. taxpayers, are expected to owe money to the IRS this tax season, according to a report from the Government Accountability Office, a legislative agency that provides data to Congress.
In 2018, the Treasury Department and the IRS updated the withholding tables to reflect the new Tax Cuts and Jobs Act.
Major changes from the new law include the end of personal exemptions, the doubling of the standard deduction, and reduced individual income tax rates.
These withholding tables are guidelines that your employer follows in order to deduct the right amount of income tax from your paycheck.
The tables are intended to work alongside Form W-4, which you can use to tailor your taxes based on whether your spouse works, whether you have children and other factors.
Withhold too much, and you get a refund in the following year — but you've given the government an interest-free loan.
If you fail to withhold enough taxes, you'll see more cash in your paycheck in the immediate term, but you'll owe the IRS the following year.
The tax agency has been reminding taxpayers through 2018 to take a second look at their withholding and make estimated payments, if needed.
Even retirees were encouraged to ensure they were withholding sufficient tax from pension and Social Security payments.
Last month, the IRS announced it would waive the estimated tax penalty for filers who paid at least 85 percent of what they owed during 2018.
Normally, you have to pay at least 90 percent of your tax liability in order to avoid the penalty.
If you owe this season, consider it a lesson learned and do what you can to head off the same troubles in 2019.
It's generally a good practice to review your withholding, especially if you've been through major life changes, including getting married or having children.
Some taxpayers should pay even closer attention to their W-4s, as they may not have paid sufficient taxes in 2018:
• Itemizers: Under the old tax law, people who itemized their tax returns may have withheld less tax from their pay.
However, fewer people are expected to itemize under the new tax law, so they should review their W-4s.
That's because the standard deduction has been nearly doubled to $12,000 for singles and $24,000 for married couples who file jointly (2018).
• Families with dependents: Previously, it may have made sense for families to have less tax withheld from their pay if they had dependents.
However, the new tax law has done away with personal and dependent exemptions, and it has broadened the applicability of the child tax credit to include higher-income households.
If you haven't already made these updates to your withholding and you owed for 2018, be sure to review your W-4. There's still time to head off a surprise tax bill next year.
• Retirees: You may have stopped punching in at work, but you still need to reevaluate your withholding. Use Form W-4V to withhold a flat rate from your Social Security check or Form W-4P to withhold from your pension.