Report: Bigger Paychecks Now Could Mean Bigger Tax Bills Next Year
NEW YORK (CBSNewYork) – Millions of taxpayers in our area could be in for an April surprise.
A new report shows fatter paychecks now could translate into higher tax bills next year.
Have you noticed a recent bump in your paycheck, brought to you by the new tax law?
"Yes, but not a whole lot," one man told CBS2's Jessica Moore.
"Play now and pay later," said another.
It turns out, you may be paying big time, as a new report finds many employers aren't withholding enough money from your paychecks.
The U.S. Department of the Treasury estimates 30 million Americans are being "under-withheld" this year, meaning their paychecks are larger right now, but come April, their tax bills will be too.
Personal finance expert Jordan Goodman told Moore people could owe $10,000 to $30,000 more in taxes next year.
So why are employers now under-withholding?
"Because they're going by the new tables that the IRS told them to, which in many cases is not taking into account the major changes that happened in tax law at the end of last year," said Goodman.
Those changes include capping the combined deduction for state and local income taxes and property taxes at $10,000 and eliminating the personal exemption, which was $4,150.
"It's a pretty bad situation because people are expecting to pay less. Tax rates did come down under the new tax law, but the effect of what you're going to pay is going to be higher if you lose a lot of the deductions you were expecting before," Goodman said.
He said it's not too late to adjust your withholdings by submitting to anew W-4 form to your employer, asking to have more money withheld from each paycheck.
"If you're in a circumstance where you have big tax deductions for state and local and big mortgage deductions that are going away or being limited dramatically, you should be withholding a lot more right now," he said.
Because each family's personal financial situation is unique, Goodman said it's best to strategize with your accountant before making any big moves. Experts also say you should look at your 2017 tax return to see how much your taxable income will go up this year before making any changes to your W-4.