This year, around 21% of the taxpayers were guilty of committing the same mistake while filing their tax returns. The introduction of the Tax Cuts and Jobs Act in December 2017 means that there were plenty of taxpayers who were required to pay more to the IRS in terms of their filing situations and tax brackets. All this happened due to a huge tax withholding miscalculation.
The IRS and Treasury Department changed the figures in the withholding taxes so that taxpayers can check tax deduction from their income taxes. However, not everyone updated the details of their withholding taxes. If you made the same mistake, you are in for a surprise.
What Is a Withholding Tax?
In case of a withholding tax, the employer deducts a certain amount of tax from an employee’s salary and pays it to any state tax authority or the IRS. The reason behind this action is to save you from tax collectors. When the tax that is withheld is greater than the required amount, you can get a tax refund after you file your taxes.
While we are at the topic of refunds, it may seem like there is no advantage in offering a loan without interest to the government. However, looking at a broader picture, it can save you from making a blunder on your withholding taxes.
What Can Happen to Me If I Made the Mistake?
There were 30 million people who were guilty of not withholding their required taxes in 2018. If you belong to this category and go on to file a return, you can be taken by surprise: certainly not a pleasant one. When you make a withholding tax mistake, you can become liable to pay a major tax debt while filing your taxes. It is also possible that the IRS slams you with an underpayment penalty.
If you think that you cannot pay your entire tax bill at once, then, fortunately, you have a wide range of options to choose from. All you need to do is discuss your limitations with an experienced professional from a tax preparation company so they can recommend you the best possible way to pay off your tax liability.
What to Do Now?
Well, we have a piece of bad news: Now, that 2018 has passed, there is nothing you can do to change your withholding tax.
At the same time, you do have a good opportunity in hand that can help you work with your 2019 withholding issue. As there are no more expected updates in the withholding table for the near future, arrange an appointment with a tax professional and conduct a review on your withholding issue. The IRS has its own useful tool to check your withholding tax with this calculator. In case you must make an update, you should do it via your W-4 form and send it to your employer.
Make sure to review your paychecks so that you do not miss out on any withholding taxes. You can also spend some time to verify the withholding tax in order to prevent the generation of a heavy tax bill. However, most likely, you are going to need the help of a reputable tax preparation company. Contact us so that our ever-dependable tax professionals can save you from committing a common tax mistake and help you to manage your withholding tax.