There has been a lot of controversy this tax season over tax payers claiming that they are receiving a much smaller tax return this year. To many, this may seem like the government has taken more money from you and you’re not getting back the amount you should. This, however, is misinformation that has been being spread around this tax season, especially on social media and the web. This year, taxes were filed under the Tax Cuts and Jobs Act which was signed into law in December 2017 by President Donald Trump and is the biggest tax code reform the country has seen in a long time. Politics aside, the new tax law had made it so that more Americans had a reduction in their tax bill.
If you receive a large tax refund, it means that you should change your withholding on your W-4 form, as a large tax refund simply means that you overpaid the IRS that year. This essentially means that you are giving the IRS an interest free loan for the year that they eventually return back to you in the form of a tax return. If your tax return is smaller or you don’t see a tax return at all, this can actually be good news because you either paid the correct amount or did not give as much extra taxes to the IRS to hold on to. A tax return is not a bonus, like many come to believe and this is money that you and your family could have used throughout the year to invest, save, paid down debt, or took vacations.
Many tax payers may not have also noticed that thanks to the Tax Cuts and Jobs Act, they had more money in their take home pay. The new tax law had created new, mostly lower tax brackets so many Americans were paying less in taxes and keeping more money in their paycheck, which also resulted in smaller tax returns for this year, not the government taking more money than you owed.
It is best to work with an accountant to discuss the correct amount you should be withholding on your W-4 so you can not only avoiding paying more than you should to the IRS, but also to ensure you are paying enough of what you owe so you can avoid tax penalties and having to owe at the end of the year.