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Many Americans are at risk for an unexpected tax bill in April because they aren't aware of the latest changes in the redesigned W-4, which employees fill out to accurately calculate how much federal tax to withhold from each paycheck, the American Institute of CPAs reported Tuesday.
A survey conducted by The Harris Poll showed that 37% of taxpayers were not familiar with the W-4, including 11% who said they had never heard of it.
"Inaccurate withholding can lead to an unpleasant surprise come Tax Day," Gregory J. Anton, chairman of the AICPA's National CPA Financial Literacy Commission, said in a statement.
"And with many individuals in a financially precarious position, it's more important than ever to understand how withholding impacts your cash flow and overall financial situation."
The new Form W-4, which the Internal Revenue Service released late last year, no longer includes allowances and makes it easier to coordinate across multiple jobs and with a spouse.
But only 26% of Americans surveyed said they had updated their withholding since the IRS released the redesigned W-4, and only 16% had made changes to their form after the Tax Cuts and Jobs Act revised withholding tables in early 2018. Fourteen percent of respondents said they had last updated their withholding before either of these major changes.
Worst of all, 45% of tax filers had no idea when they last updated their withholding.
When 2018 taxes were filed in 2019, many Americans were reportedly confused when they did not receive a tax refund, according to the report. The new tax law lowered rates across income levels helping to reduce Americans' income tax burden, but because it also updated withholding tables, many did not get the refunds they had come to expect.
"People tend to overlook a few extra bucks in their take-home pay, but they sure notice when they get a $300 tax bill instead of a $1,500 refund," Anton said. "This underscores why understanding and updating your tax withholding is so important — it directly impacts your budget."
