Monday, February 11, 2019


An early entry to address an issue receiving a lot of press recently

Just like the rest of the country, some of my clients are getting smaller refunds this year.  But the number to compare on your 2018 and 2017 tax returns is NOT the refund, or balance due, amount but the TOTAL TAX amount.  This is the number on Line 15 of the 2018 Form 1040 and Line 63 of the 2017 Form 1040, or Line 39 of the 2017 Form 1040A.

Your refund is a factor of your withholding.  It not a reflection of any change in your tax liability – the actual income tax you are paying.  In February of 2018 the IRS revised the income tax withholding tables to reflect the changes made by the GOP Tax Act.  It appears the IRS was too “liberal” in its revisions – perhaps instructed to do so by the government to make it look like you were saving more from the tax changes.  The problem is compounded when you have several sources of income from which federal income tax is withheld. 

With my clients, I specifically noticed substantial decreases in withholding from NJ state pensions.

The IRS realized its FU and has slightly revised the way it calculates the penalty for underpayment of taxes as a token response.

Two important points -

(1) The additional amount received in each weekly paycheck as a result of the revised withholding is NOT a true indication of the savings from the GOP Tax Act. 

(2) The fact that this year’s refund is less than last year does not mean you are paying more tax under the GOP Tax Act.

If your 2018 income is basically the same as 2017 and your refund is $2,000 less than last year, or you actually owe Sam $1,000 when you got back $1,000 in 2017, but your federal income withholding was $3,000 less than last year YOU HAVE PAID $1,000 LESS IN FEDERAL INCOME TAX.  You got an extra $3,000 from Sam during the year and now have to give $2,000 of this “loan” back.

The trouble with getting an extra $50 or $60, perhaps more than you should be getting based on reality, in your paycheck each week is that you spend an extra $50 or $60 each week and end up with surprise when your refund is less than it was last year. 

The real issue here lies in the fact that the criteria for claiming federal withholding allowances has completely changed with the GOP Tax Act.  The current Form W-4 on file for most taxpayers is no longer relevant.  The IRS has attempted to revise the Form W-4, but has not been very successful.

Back to the 1040s!


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