“A lot of people are going to be surprised,” Rosen said.
Refunds Decline
The IRS estimates it will ultimately issue about 2.3 percent fewer tax refunds this year. In the first week of the filing season, the number issued fell about 24 percent, though much of that is likely tied to the government shutdown that left the IRS understaffed as it was preparing for filing season.
So far, the average refund is less than at the same point in 2018, averaging $1,865 compared with $2,035 last year, according to IRS statistics from the first week of the filing season. The Treasury Department downplayed its own data in a tweet Monday, saying the dip is based on a “small initial sample from only a few days.” A few minutes later, Treasury also tweeted a link to the IRS’s withholding calculator, encouraging taxpayers to look up how much they should be having taken out of their paychecks.
The confusion partly stems from the IRS changing the guidelines that helped employers determine how much to withhold from workers’ paychecks. The new withholding formulas put in place last year were more generous, but are a blunt instrument that doesn’t reflect the new law’s other changes, like the SALT cap as well as an end to the deduction of unreimbursed employee expenses such as home offices and union dues.
For the affluent taxpayers currently preoccupied with SALT limits, the new tax law also frees them from the alternative minimum tax, or AMT, and creates a much more generous credit for children under 17.
Big Surprise
Put it all together and the amount withheld from a paycheck in 2018 could be very different from what a taxpayer will owe the IRS by April 15.
The only way to have prevented a big surprise was to adjust withholding last year. Few people actually did that and it’s difficult without professional advice, because so many factors are at play.
“It’s a moving target,” said Arnold Berman, a CPA at ABD Associates in Valhalla, New York. “Your situation is going to be different from someone else with your income.”