More people will owe tax because too little was withheld from their earnings during 2018
Based upon a study by the Government Accountability Office (GAO), more people will owe tax because too little was withheld from their earnings during 2018, based on updated IRS withholding tables that implement tax law changes.
The GAO released a report on July 31st stating that a Treasury Department recommendation for a $4,150 withholding allowance would “result in a slightly lower proportion of overwithheld taxpayers and a slightly higher proportion of underwithheld taxpayers under the Tax Cuts and Jobs Act than would have been the case under prior law.”.
Under-withholding occurs when the amount of tax an employer takes out of an individual's paycheck throughout the year is too low, creating a tax liability. By contrast, an individual subject to over-withholding will receive a refund.
2018 Tax Withholding Tables
The 2108 tax withholding tables were updated to reflect the increased standard deduction, repealed personal exemptions, and adjusted tax rates included in the 2017 tax law. The IRS increased the withholding amount allowed on an annual basis to $4,150 in 2018 from $4,050 in 2017.
Republican lawmakers and Trump administration officials, including House Ways and Means Committee Chairman Kevin Brady (R-Texas) and Treasury Secretary Steven Mnuchin, had promised that 9 out of 10 taxpayers would see a boost in their take-home pay soon after the new law's passage.
Families making $75,000. who have two children, and claim the standard deduction are estimated to see almost twice as much withheld in taxes than owed, and only 6 percent of taxpayers will see accurate withholding, the report said. Withholding and tax compliance have a relationship. Accurate withholding and overwithholding foster tax compliance, the report said, while “underwithholding tends to be detrimental to compliance. IRS urges taxpayers to try to have withholding match their anticipated tax liability.”
What You Should Do Regarding Your 2018 Tax Liability
Please contact our office if you have questions regarding your 2018 tax liability, or to see how the new tax rules and withholding requirements may affect your personal tax situation.