As a result of tax reform, most taxpayers will be paying less tax for 2018 than they did in 2017. But that may not translate into a larger refund. Your refund is the amount that your pre-payments (withheld income tax, estimated tax payments, and certain credits) exceed your tax liability, and if the pre-payment also got reduced, you could be in for an unpleasant surprise at tax time.
So, why would the pre-payments, particularly withholding, be less? Simply because the current W-4 form on which employers base the amount of tax to withhold, and the withholding tables provided by the government that employers use to determine the amount to withhold, are not sophisticated enough to deal with the revised tax laws. Congress passed the changes at the 11th hour of 2017, without giving the IRS sufficient time to adjust the W-4 form and withholding tables to account for the changed laws. The IRS did come out with a revised W-4 late in February, but there are serious concerns that the revised W-4 and withholding tables are not coming up with the correct amounts based upon the new tax law and that the form itself is much more complicated for employees to complete than prior versions were. In fact, the government is so concerned about this that the IRS issues almost daily notices cautioning taxpayers to double check their withholding.Continue reading →