Surprise tax bill? Withholding changes could be why you owe more
Millions of people are getting a surprise this tax season: smaller refunds or no refund at all. Under President Trump's new tax law, 80 percent of Americans are expected to pay less in taxes overall. But a new CBS poll found nearly three out of four people said the new law pushed their tax bill higher, or left it unchanged. Only one quarter of people said their taxes had declined.
Jason and Amber Edwards, who we met back in 2017, were counting on lower taxes and maybe even a refund in 2018.
"We were getting to the point where I wasn't dreading doing my taxes anymore," Jason said. His wife added said she was even "a bit optimistic."
The college educators from Rhode Island had planned to put the extra money toward their newly adopted baby son. But when they filed their returns, they got a surprise: no refund and the IRS said they owed thousands in additional taxes.
"It became a huge shock," Amber said. "We had just started to get all the necessities for a baby … and then to turn around and suddenly have to write a $3,000 check, you know, this was not the year for us to be doing that."
Jeffrey Levine, a certified public accountant in New York, said the Edwards are a "good example of reality."
Back in 2017, we asked him to review the Edwards' tax returns and project their tax bill under the new law. Levine estimated a savings of about $650. The segment was so popular with GOP lawmakers, even the president retweeted it. So what happened?
"They owe a lot more than they probably thought they would have given that increase in income because they experienced withholding changes like most of the American public," Levine said.
Tax withholding is the money your employer pulls automatically from your paycheck and sends to the IRS. Under the new tax law, the withholding changed, giving people more money in each paycheck, resulting in potentially larger bills at the end of the year. Like what happened to the Edwards.
"I know a lot of people in this position where they thought they were going to get money back and their paychecks were a little bit more but then they also wind up owing, too. Well then why did we even do it?" Amber said.
For people who got a surprise tax bill this year, Levine says there's only one way to avoid it.
"You need to put more money in throughout the year. Whether that's changing your withholdings to have more taken out of each pay check or perhaps paying estimated tax payments -- that's up to you. But it's pay me now or pay me later, but you're going to pay one way or another," Levine said.
We reached out to the two other families in our 2017 tax story but didn't hear back. Nationally, refunds are down some $6 billion compared to last year and 1.6 million fewer people are getting them.