Tax refunds aren’t always helpful

You’re probably enjoying the influx of cash if you received a large refund after filing your 2017 income tax return, but a large refund isn’t all positive. It also means you were essentially giving the government an interest-free loan.

That’s why, during the previous tax year, a large refund would usually state that you should contemplate reducing the amounts you’re having withheld (or estimated tax payments you’re making) for the current year. However, 2018 is a bit different.

The TCJA and withholding

To reflect changes under the Tax Cuts and Jobs Act (TCJA)—the suspension of personal exemptions, changes in tax rates and brackets and increase in the standard deduction—the IRS updated the withholding tables that indicate the amount employers should hold back from their employees’ paychecks, generally reducing the amount withheld.

For individuals with simple tax situations, the new tables might provide the correct amount of tax withholding, but they might cause other taxpayers not to have enough withheld to pay their ultimate tax liabilities under the TCJA. So even if you received a large refund this year, you could end up owing a large amount of tax when you file your 2018 return next year.

Perils of the new tables

People with more complicated tax situations could have their income taxes under-withheld. If, for example, have dependents age 17 or older, you itemize deductions, have more than one job or are in a two-income household, you should review your tax situation and adjust your withholding if appropriate.

To assist taxpayers in reviewing their situations, the IRS has updated its withholding calculator (available at The calculator reflects changes in the increased child tax credit, available itemized deductions, repeal of dependent exemptions and the new dependent credit.

More considerations

There are more reasons to check your withholding than tax law changes. Additional reviews during the year are a good idea if:

  • You get married or divorced,
  • You add or lose a dependent,
  • You purchase a home,
  • You start or lose a job, or
  • Your investment income changes significantly.

Any time during the year you can adjust your withholding or even multiple times within a year. Just submit a new Form W-4 to your employer to modify your withholding. Changes typically will go into effect several weeks after the new Form W-4 is submitted. (For estimated tax payments, you can adjust each time quarterly payments are due.)

The TCJA and your tax situation

You could run the risk of greatly under-withholding your federal income taxes if you rely solely on the new withholding tables. As a result, you could face a surprisingly high tax bill when you file your 2018 tax return next year. Contact us if you need help determining whether you should adjust your withholding. We can answer any questions you have about how the TCJA may affect your particular situation.

© 2018
Ben R Shull CPA LLC provides clients with tax, transaction, and advisory services. The insights and quality services we deliver help lead our clients through the next generation of changes, and accelerate growth while reducing risk. CPA Katy, TX.