As employees begin to receive their updated paychecks based on the new tax code changes, many are seeing incorrect withholding amounts, which could lead to financial trouble down the road, one financial expert warns.
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As previously reported by FOX Business, the IRS did not create new W-4 forms based on the updated law. As a result, for the current year employers are using the documents already on file, which are not tailored to the updated policies. Due to a myriad of sweeping changes to everything from personal exemptions to the standard deduction, this is proving to be problematic for taxpayers.
“For many of our clients, the withholding just isn’t adequate because their original withholding forms took into account deductions they’re just not going to get,” Michael D’Addio, principal at accounting firm Marcum, told FOX Business.
D’Addio said about half of his clients, who tend to be itemizers, are having trouble with inadequate withholding amounts, which means they are scheduled to pay less in taxes throughout the year. If those individuals continue payments at current levels, they will receive a big surprise from the IRS come April in the form of a bill instead of a refund.
That could be difficult for people who don’t recognize the miscalculation and use the extra cash throughout the year instead of saving it. According to a recent survey by online tax filing service TaxSlayer, 27% of individuals said that if they were to owe money to the IRS in 2018, they are not confident they would be able to pay it.
The IRS and big payroll processing companies like ADP and Paychex have all emphasized the need for taxpayers to double check withholding amounts this year. By the end of February, the IRS is expected to roll out an online calculator where individuals can check what they owe under the current law against what is actually being withheld.
If you can’t consult a tax adviser about your taxes or W-4, D’Addio said you should use the tax calculator once it becomes available. After that, you can amend your W-4 so that the correct amount is withheld from your paycheck.
The IRS is planning to release a new W-4 commensurate with the tax code changes later this year, which D’Addio is hopeful will alleviate some of the problems once it goes into effect in 2019.