According to the IRS, a little over 70% of taxpayers received a refund in 2017. While many people enjoy the extra financial boost, the truth is that if you get a tax refund, it means you are overpaying the IRS throughout the year. A quick checkup could help you decide whether to file a new W-4 form with your employer to increase your paychecks.
How does the IRS decide how much money to take from each paycheck?
Employers require that their employees fill out a W-4 form, so they know how much money to withhold from each paycheck. Ideally, this form allows you to pay enough taxes that you don’t owe the IRS money at the end of the year. Most people overestimate the taxes they’ll pay, though. This means that too much money is held from each of their paychecks, and they have to request a refund.
Since the Tax Cuts and Jobs Act was enacted in December of 2017, changes to the tax code will influence many people’s taxes. Many Americans will pay less in taxes for the 2018 tax year because of this piece of legislation.
Important tax law changes that reduce taxes include:
- Expanded and increased Child Tax Credit
- Personal exemptions replaced by an increased standard deduction
- Changed tax brackets
- Reduced tax rates
- Credit for other dependents
Of course, if you’ve experienced life events that can change the way you file taxes, you’ll need to file a new W-4 form right away. If you adjust your withholdings on your W-4 form, the amount taken from each of your paychecks to cover taxes will also change. This could increase the amount of your take-home pay during the year.
What’s the best way to find out if new tax laws will affect you?
The IRS wants to make the process of deciding how much money to have held back from each paycheck for taxes easier. You can visit their Withholding Calculator site to see how the new laws apply to your individual situation.
To use the IRS Withholding Calculator, you’ll need your 2017 tax return and your most recent paystub. The calculator doesn’t require any personal information. It’s just a tool to help you understand whether you should file a new W-4 form with your employer.
Likewise, you can check with a tax professional to help you with any tax-related questions. In addition to answering your questions, some tax services may offer a Tax Advance loan. A Tax Advance loan uses the taxpayer’s anticipated tax refund as security against a loan for the same or a lesser amount of money. With a Tax Advance loan, you can get a portion of your refund in as little as 24-48 hours after the IRS accepts your e-filed tax return. This is important because in 2018 the earliest refunds were issued for anyone who claimed an Earned Income Tax Credit, or EITC, for 2017, was February 27th. This date may even get pushed back into March in upcoming years. Because of this and the “financial holiday hangover,” many people find it helpful to get access to at least part of their expected refund as soon as possible by getting a Tax Advance loan.
Taxes can be overwhelming. That's why we've created the Sunset Finance Guide to Tax Returns to provide more information.