Wait, I owe the IRS?

The first tax filing season under the new federal tax law is proving to be surprising, confusing – and occasionally frightening – for some Americans, especially those accustomed to getting money back from the government.

Take Andy Kraft and Amy Elias of Portland, Oregon. The couple had grown comfortable getting a small refund each year, a few hundred dollars or more. Then they found out they owe $ 10,160 this year.

"I'll never forget the moment, I thought 'We look good' and then we added to the next W-2 and my jaw hit the floor," Kraft said. "I was looking for something good."

President Trump promised a reduction in taxes with the new law. And by most measures, the majority of Americans want see one. The nonpartisan Tax Policy Center projected the tax law would reduce individual income taxes by about $ 1,260 on average, although it benefits higher earners more. But not everyone is benefiting, including some taxpayers who failed to adjust their holding.

The IRS has recommended a "paycheck checkup," saying that "some taxpayers might prefer to pay more and pay more in their paychecks." The trouble is, few Americans seem to have done that.

Why you may get a smaller tax refund this year

The majority of workers did not change their holding, according to payroll processing firm ADP.

CBS News. "Pete Isberg, ADP's head of government relations, recently told CBS News.

Fewer deductions

Some people already saw the benefit in the form of bigger paychecks. That's because the law forced. But the system is far from perfect, and many workers have not had enough in taxes set aside. Now, the IRS wants that money.

In addition, the law also includes "exemptions from personal exemptions", "increased child credits", "limited popular deductions and generally upended many familiar practices". That has unmotivated feeling a bit.

It's all different, "said Howard Gleckman, a Senior Fellow at the Tax Policy Center." We were very comfortable with our tax law.

"Grief of acceptance"

Kraft and Elias are stunned. He even tried to reverse-engineer things to figure out where they went wrong. Hey painstakingly put together all the numbers. The CPM to verify the figures they were seeing on TurboTax. Crushingly, they were correct.

The couple's effective tax rate was lower, but they still owed the government.

"I feel like I have reached a stage of grief of acceptance," he said. "In a twisted way I've had to pay this in one lump sum."

A number of experts like Gleckman are urging taxpayers to obsess less about their refund or what they owe when measuring the effect of the new tax law. These are just a sliver of your tax picture.

But the truth is, many Americans have come to rely on refunds. About three-quarters of U.S. taxpayers typically get one and they averaged around $ 2,800. For some low-income households it is the biggest cash infusion of the year.

Fewer refunds

The IRS reported Thursday that the average tax refund as of the second week of filing season was $ 1,949, down 8.7 percent from the year earlier. The total number of refunds is down 16 percent.

Experts caution it is too early to draw conclusions about a tax season that ends in April. Plus, the number of returns – 27 million as of Feb. 8 – is down 10 percent from a year ago, due in part to the partial government shutdown. The image is getting clearer as the IRS gets back up to full speed.

All the same, the initial results have surprised early filers and worried those who have not yet tackled their taxes.

Paying for accounts for the law's changes. The government issued updated with the guidelines on how to pay the employee's paycheck to cover taxes. Withhold too much and you get a refund at tax time; too little and you owe.

It is at best, at estimate. But it's an estimate that grew dramatically more difficult to make under the new law.

The Government Accountability Office estimated that over 30 million workers had lost their paychecks. That's about 3 million more workers than normal.

Few taxpayers appear to have the IRS 'advice to do a "paycheck checkup" to make sure they had the proper amount withheld. Payroll processor ADP, which is responsible for paying one out of every six Americans, said the vast majority of people did not update their withholdings last year.

More surprises

Some taxpayers did not quite get it right.

Kevin McCreanor of Milton, Georgia and his wife usually get a sizeable refund each year – it was more than $ 12,000 last year. While they are waiting for a big refund, they are looking for a better way to help them. Their job in telecom, can vary greatly, so there is comfort in never facing a big bill.

They are only getting back $ 519 this year. Their incomes and tax rates increase, and McCreanor's acknowledgments there are probably more he could have done.

Some surprises were welcome, however. Brian Goodell and his wife typically pay $ 10,000 to $ 15,000 each year. This year the Tigard, Oregon, is a $ 15,000 refund. They believe they have some benefit from the increased child tax credit. They also made more charitable donations and increased their withholdings. While Goodell is not sure why it worked so well, he'll happily take the refund.

Taxpayers can get a better sense of how they look at their tax liability or tax rate. This information is often available at the accountant or tax preparation software. They can thus look at the "total tax" on those summaries or form 1040. These are not perfect measures either, but provide some perspective.

Breaking even

And remember that getting a refund is not a good thing. Breaking even is the best outcome from an economic point of view. If you've got a refund, that means the government has been holding onto your money.

Additionally, Eric Bronnenkant, the head of tax at Betterment and CPA and certified financial planner. People's lives change in ways that can dramatically influence their taxes, such as marriages, divorces, kids, moving or job changes. The average taxpayer may not realize the full impact.

"I'm not surprised by the reaction people are having," Bronnekant said. "I think for some people the reaction is more than others."

,

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.