It seems we all very quickly went from wishing our friends a happy New Year to frantically asking if they had adjusted their withholdings in 2018, and if they were going to owe money come tax time. Turns out only 16% of us actually adjusted our withholding—the amount of money that you pay directly to the IRS out of your paycheck— last year, according to NerdWallet. Your withholding is indicated on the W-4 form you file with your employer when you first start a job. Most people hope that they’ve elected to pay just enough (and won’t owe anything) or that they’ve had too much withheld and they can look forward to a refund. But generally no one (no one that I know, anyway) wants to wind up owing money come April 15. And unfortunately, if you didn’t make that change to your W-4 in 2018, you may find yourself dipping into your wallet for Uncle Sam in a few weeks.
Gina Ednie, a member of the HerMoney community’s private Facebook group, estimates that her family may owe as much as an additional $10,000 this year, and she recently appeared on NBC’s Nightly News to discuss her situation.
Of course while adjusting your withholding can help lessen the blow of the tax changes, it’s not a cure-all. If you haven’t already sat down with your accountant to talk about how the new laws may impact you, get that appointment booked now. Some of the biggest changes include:
- The standard deduction has changed. This year it’s $12,000 for single filers, $18,000 for heads of household and $24,000 for people married filing jointly. As in years past, you can still choose to take the standard deduction or itemize. To see where you’ll fall, check out this interactive calculator.
- Medical expenses may be more deductible. As of this year, folks with medical bills that exceed 7.5% of their annual income can deduct those expenses (In years past, the bills had to exceed 10%.) Just note, it still has to make sense to itemize overall, which means you’ve got to be over the standard deduction.
- You can spend 529 savings plan money on primary school. That’s right, your 529 plan doesn’t have to be earmarked for your college years. You can spend those funds on tuition for grades K-12 if you please.
- Child exemption/tax credit changes. Many parents had come to rely on the $4,050 exemption they could take for each child, but that’s been abolished. Instead, families earning up to $400,000 can take a $2,000 per-child tax credit for children under 17.
- Limits on State and Local Income Tax deductions. The tax deduction for these common taxes (often abbreviated “SALT” taxes) has been limited to just $10,000. This could be bad news for your family if you got a hefty property tax bill that exceeds that amount.
As if these changes weren’t enough to worry about, it seems there’s also trouble at the IRS, brought on by the government shutdown, which took all government agencies out of commission for 35 days. According to USA Today, after the shutdown, IRS employees came back to work to face more than 5 million pieces of mail that had to be processed, and today only one out of every 15 calls to the IRS is actually being answered — and that’s only after an 81-minute average wait time.
Thankfully, even if you can’t get through to the IRS, you can still take steps to reduce your tax burden before April 15. You can get a tax deduction of up to $5,500 (and lower your 2018 taxable income) when you make a deductible IRA contribution — just make sure your contribution is earmarked for the 2018 tax year. You can open your IRA online or in-person, at a number of brokerages nationwide.
Lastly, and perhaps most importantly, NOW is the time to adjust your withholding for 2019 if you weren’t happy with this year’s outcome. It’s easy. Go to HR, tell them that you want to adjust your withholding on your W-4. They’ll give you a new form, and you can fill it out appropriately, based on what the IRS’s handy withholding calculator (and/or your accountant) recommends for your situation. Seriously, don’t wait until this time next year to freak out about this all over again—simply being prepared is more than half the battle.
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