Personal finance

One in five fear they’ll owe the IRS money this spring

PeopleImages | E+ | Getty Images

Tax season is starting off with a whimper, as 1 in 5 people predict they will owe the IRS this tax season.

Those were the findings from a recent survey by NerdWallet. The personal finance website polled 2,002 adults online from Nov. 18 through Nov. 20, 2019.

Taxpayers who think they’ll owe the government expect to pay an average of $2,667, according to the survey.

“One of the things we think is happening is that it’s partially due to the tax law changes we saw last year,” said Andrea Coombes, a tax specialist at NerdWallet.

Indeed, the Tax Cuts and Jobs Act went into effect in 2018, resulting in a nearly doubled standard deduction, curbs on certain itemized deductions and the elimination of personal exemptions.

Taxpayers often didn’t grasp the full impact of those changes until they filed their 2018 returns last spring.

Only half expect refunds

Meanwhile, just over half of participants said they expect to receive a refund when they file their 2019 returns, NerdWallet found.

That’s down sharply from the 86% of participants who last year had anticipated getting money back from Uncle Sam after filing their 2018 tax paperwork.

This may not necessarily be a bad thing.

In fact, it may be a sign that taxpayers are better understanding how the Tax Cuts and Jobs Act affects the taxes withheld from their pay.

Overall, the new law reduced individual income tax rates and led to an overhaul of the withholding tables employers use to deduct income taxes from employees’ paychecks.

See below for the 2020 tax rates.

The IRS also changed Form W-4, a key piece of paperwork you can use to fine tune the amount of  tax withheld from your pay.

Not all taxpayers were prepared for these updates.

Those who failed to review their withholding at work may have been having too little in taxes pulled from their pay, meaning they risked owing the IRS the following year. Still, these people took home more money during the year.

The flip side is having too much withheld, which leaves you with a possible big refund from the IRS, along with a smaller paycheck.

It’s too late to address your withholding for 2019, but now is a good time to course correct for 2020.

“Think about where you will be next year,” said Coombes. “This is a great time to look at your Form W-4 and make sure you aren’t underpaying or overpaying your taxes.”

File early if you can 

Getty Images

The earlier you crunch the numbers on your return, the more time you have to think about next steps if you end up owing.

Remember, April 15 is the due date for any taxes that you owe. This deadline still stands even if you get a six-month extension to submit your return. Here are some suggestions if you owe the IRS:

• Consider your payment plans. The cheapest way to knock out your tax bill is to make a direct payment through your bank account – which you can do for free.

Plastic is also an option, but expect to pay a fee of up to $3.95 for debit cards and 1.99% of the amount for credit cards.

More from Personal Finance:
Here’s why getting a raise can actually hurt your retirement
Here’s how to financially prepare for the worst-case scenario
Tax season is here! What you need to make it easy

Finally, there’s the option of paying the IRS in an installment plan. The taxman doesn’t charge a set-up fee for payment plans under 120 days, but penalties and interest will accrue until you’re fully paid.

Long-term plans are also available, but those come with set-up fees as high as $149.

• Don’t stop filing. Even if you’ll have a hard time paying the bill, make sure you submit your return. That’s because the punishment is harsher if you don’t file on time.

The failure to file penalty is 5% of the unpaid tax you owe, while the penalty for failure to timely pay your taxes is 0.5%. “Get your return in, and don’t bury your head in the sand,” said Coombes.

• Get yourself together for 2020. If you wound up owing in 2019, avoid an encore in 2020. Fine-tune your tax withholding with the IRS online calculator, and start planning ahead with your accountant.

“This is a great time to think about next year,” said Coombes. “Make sure your withholding is accurate.”

Products You May Like

Articles You May Like

‘Schitt’s Creek’ or ‘The Good Place’ could give cable a rare chance to shine at the Emmys
Ask Larry: Will My Wife’s Social Security Spousal Benefit Be Half My Benefit If I File At 70?
Coronavirus: Plans for fans to return to sport events in October called off
Home Prices Skyrocketing Because Of Low Mortgage Rates, Not Because COVID-19 Increased Demand For Large Homes
Billionaire Barry Diller calls stock market ‘great speculation,’ urges everyone to save cash

Leave a Reply

Your email address will not be published. Required fields are marked *