Tax season is here. If you’re like many people, you may look forward to receiving a sizable income tax refund each year. You might even have plans for how you’ll spend the money before the refund ever shows up.
Unfortunately, for some taxpayers, the refund they anticipate will never arrive. Just because you received a refund last year (or even the last five years), doesn’t mean it’s guaranteed to happen again this year, especially in light of the Tax Cuts and Jobs Act (TCJA), which passed in December 2017 and goes into full effect this year.
Here are two of the most common reasons why the tax refund you expected might not show up:
1. Your tax withholding was incorrect.
When you started your current job, you probably filled out a stack of paperwork as part of the process. One of those papers, your W-4, determines how much of your money is held out for income taxes. Also, it determines the refund you receive at tax time.
On your W-4 form, you select how many allowances (aka withholdings) to claim. Allowances are determined by your number of dependents, your tax filing status, and other factors. The more allowances you claim, the less money for federal income tax your employer will hold out of your paycheck.
Chances are, you haven’t thought much about those forms since the day you turned them in. However, it may be time to give your withholdings a second look. One of the major effects of the TCJA was a nearly across-the-board decrease in income tax rates. By early 2018, the IRS had updated its payroll withholding tables to reflect these lower tax rates. This means that unless you updated your Form W-4 with your employer, the amount of federal income taxes withheld from your paycheck every pay period throughout most of 2018 was less than it was before, all else being equal.
While that sounds great in theory—who doesn’t want a larger pay check?—there is a consequence. When your employer holds out less taxes during the year, it could mean that your refund is a lot less than you expected—or that you won’t be receiving a refund at all. Make sure you know these 11 new tax deductions and reductions under the Tax Cuts and Jobs Act.
2. Your refund was garnished.
Do you owe the government money? Your tax refund could be seized to cover your debt. The most obvious example of this is back taxes owed to the IRS. If you still haven’t paid your taxes from a previous year, the IRS will typically apply this year’s refund to your balance.
Many taxpayers mistakenly believe if they arranged an installment agreement with the IRS for prior years’ taxes, they will still be able to collect a refund this year. This is not so. IRS installment agreements nearly always contain a condition that any refunds due to you will be automatically applied to your back taxes.
Call Williams & Kunkel CPA today in Flower Mound at 972-446-1040 to have a chat and find out how you can grow your real estate business.
Source: Reader’s Digest