Here’s why millions of Americans owe more in taxes this year
For the millions of Americans surprised by either the big bills or big refunds they’re seeing this tax season, experts have a word of advice to avoid any shocks next year: start paying attention.
“The new tax rules will affect people’s final tax bill, whether they owe or get a refund, so they have changed everyone’s situation,” Andrea Coombes, NerdWallet’s tax specialist, told the Daily News. “That means you should go in and make sure that your withholding is appropriate.”
Her recommendation comes after NerdWallet, a personal finance website, published its 2019 tax study on Tuesday.
The survey found that nearly 1 in 5 Americans who have prepared or filed their 2018 federal tax return reported owing additional money to cover their tax bill. Of those, almost one-third (32%) say they received a tax refund on their 2017 federal return.
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At that rate, a possible 7.9 million taxpayers who received federal tax refunds last year may be slapped with a bill this year, according to the site’s analysis of the survey data.
Yet not everyone was getting billed. Three in five Americans who had prepared or filed their 2018 federal income taxes said the refund they were receiving was higher than expected.
The uptick in unexpected discoveries, Coombes said, is mainly because of the new law — one that few Americans are taking seriously.
Only 17% of Americans said they planned to update their tax withholding following the new tax law, according to the study. An earlier survey by the website showed a slightly smaller percentage of people (16%) who had actually changed their withholding within the past year as a result of the regulations.
Cindy Hockenberry, director of tax research and government relations, similarly said more people this year either got lower refunds than expected or none at all.
“They didn’t heed the warnings from the IRS about checking their withholding” Hockenberry told The News.
President Trump signed the Tax Cuts and Jobs Act into law in December 2017. The new law altered federal income tax brackets, doubled the standard deduction and changed many other tax credits and deductions.
Hockenberry noted that despite the surprises many people saw, others benefited.
More people in a moderate income range — less than $150,000 — who have children saw a $2,000 tax credit, which can prove to be more beneficial than deductions because they will reduce tax liability dollar-for-dollar as opposed to based on what bracket a person is in, according to Hockenberry.
Yet regardless of how Americans were affected, her main takeaway was that people need to get more involved and in the know.
“They should hire a tax professional. They should sit down and go over their individual situation and get some really sound advice," she said.
The average cost of tax preparation is $273 if you want to itemize your return or $176 without itemizing your return, according to personal finance website The Balance.
Coombes echoed Hockenberry’s point, noting that because the tax law is detailed and complex, it makes it harder for Americans to properly understand it.
“It’s hard to know for any one individual exactly how they’re affected, so if you’re wondering and maybe a little confused about all of the changes, it’s probably a sign that you should think about hiring a tax preparer: someone you can actually talk with to find out how you’ve been affected,” she said.
“It really is crucial to making sure you don’t get a surprise at tax time next year,” she added.