New laws often cause some measure of confusion in their first years. When the Tax Cuts and Jobs Act of 2017 went into effect, it was no exception. It created confusion for a lot of taxpayers, many here in Massachusetts included. Now, the IRS is advising taxpayers to make sure their withholding is correct in order to avoid problems during tax time, but getting it right could present a challenge.
Adjusting the amount of taxes that an employer takes from an employee’s paycheck helps control whether a taxpayer receives a refund or pays the IRS at tax time. It could also help adjust those numbers up or down. Moreover, changing withholding could affect how much individuals receive as income each pay period. Those wanting more income each month would increase the number of allowances claimed on their W-4 forms and decrease them to pay more taxes during the year to increase the potential for a large refund.
Theoretically, individuals could simply use a calculator to determine the best option for them. However, that may not provide all of the information taxpayers need in order to make an informed decision. Looking at the totality of the situation, including whether the standard deduction is used, expenses are itemized or what deductions may be available depending on the circumstances, could affect the outcome at the end of the year.
No one likes surprises when it comes to their taxes. Even though it isn’t usually possible to calculate taxes down to the dollar, getting close provides a good planning tool for the year. Then, when it comes time to settle up with the IRS in April, Massachusetts residents are not caught unaware when they see their tax bill or find their refunds are not what they expected.