Taxpayers who typically receive a tax refund may be surprised to discover they owe taxes next April when filing their 2018 taxes.
The Tax Cuts and Jobs Act (TCJA) made significant changes to the tax rules, including the $10,000 limitation for the deduction of state and local taxes; the elimination of deductions for unreimbursed business expenses, tax preparation, and investment expenses; and the elimination of personal exemptions, which in some cases will create a higher tax liability than under the 2017 pre-TCJA rules.
The IRS encourages wage-earning taxpayers to do a “paycheck checkup” and provides a withholding calculator on its website: https://www.irs.gov/payments/tax-withholding.
The TCJA does not provide for any relief or forgiveness of penalties assessed for insufficient withholding, even if the penalty was due solely to an increase in a taxpayer’s tax liability under the TCJA.
We recommend that taxpayers with more complex tax returns, with income not subject to withholding, or with employer equity compensation (NQSOs and RSUs) contact their tax preparer to review withholdings and calculate adjustments to ensure compliance in 2018.