What's Up With Your Taxes?
Just finished filing our income tax today and no surprise, I've gone from getting a low 4 figure refund the past few years to owing a small amount to the IRS. That seems to be the norm, so what's going on?First of all, I'm not a tax accountant. Second of all, those of you that are already scoffing at me for not planning my withholding to the penny so that the IRS didn't get to use my money interest free all year may as well stop reading - I'm not writing this for you. Yes it's smarter to minimize your refund, but it ain't easy to do and most people would rather get something back than run the risk of paying (hence the uproar now).
So what happened? Let me give you an example (these numbers ARE NOT my actual numbers - they are made up round numbers for illustration purposes). We'll look at Jack (a high school teacher) and Jackie (a Windows server admin at a mid-sized company). They file married/jointly and their income after the little bit they carve out pre-tax for her 401K is right at $100K.
Their first combined paycheck in the middle of January 2018 was $100 more than last year. Hurray! They get paid twice a month so that's $2400 a year! Not enough to go buy a new car, but it's significant. Might mean some new clothes, dining out more often, maybe even a weekend at the beach. Awesome! The $100 is nice, but by April they've kind of forgotten about it and then Jackie get a little merit raise at work in June and it all blends together.
So now it's February 2019 and tax time. Jackie and Jack are used to getting a decent refund (around $1500) and using that to take a vacation after the school year. But as they go through the tax program, they start noticing some things. They're used to itemizing deductions, claiming mortgage interest, property taxes, donations, state income tax, etc. But some of those are now being capped. They're pushed into the standard deduction of $24K for a married couple - higher than it was previously, for sure. But the personal exemption is gone which counters some of that gain. After all is said and done, they end up owing the IRS $150!
So did their taxes go up or down? Well, they did go down, But not by $2400. They went down by $750. That's not a figure to be sneezed at, but it's not nearly as much as they thought a year ago and they miss having the big refund that they can use for a down payment for a car or for a getaway.
For those of you that have already filed, does that look like what you've seen? Were you smart enough to change your W-4 at the beginning of the year? And for those of you that pay a lot more attention to such things, do I have this right or am I missing something?
Labels: Money
