You gathered your documents. You filed your taxes on time – maybe even early. Only to find that you owe thousands more in taxes than you have in the past. This was the case for many who filed their taxes this spring, thanks to sweeping changes in tax law.
The IRS reported that, as of February 1, tax refunds are down 8.4 percent this year. And many taxpayers suddenly find themselves owing far more in taxes than they have in previous years. To understand why this happened, consider the following:
Amounts withheld from your paycheck probably changed
Part of the Tax Cuts and Jobs Act of 2017 included changes to “withholding tables”, the guidelines employers use to deduct taxes from your paycheck. Without knowing that these guidelines had changed, many people failed to adjust their W-4’s accordingly. Then, when they filed their taxes, they learned they had not had enough taken out to pay the taxes they owe.
Changes to deductions and exemptions
The recent changes to federal tax laws increased the number of standard deductions taxpayers can claim, but it also eliminated many exemptions. It also limited many state and local tax deductions that were previously available. Without the deductions they had previously relied on, many now owe more than they can afford to pay.
What to do if you owe the IRS
If you owe more money than expected to the IRS, do what you can to pay for at least part of your return on time. You can also apply for an installment plan with the IRS. Consult with an experienced tax professional or tax attorney to learn more about your options.