Why their 2018 tax bill could catch clients off guard
10.2% of New Jersey residents will pay more taxes after tax reform, as will 9.4% of Maryland residents.
Most Americans will owe less in taxes as a result of President Donald Trump’s overhaul of the U.S. tax code, but in a few jurisdictions, about one in 10 will be paying more, according to an analysis released Wednesday by the Tax Policy Center.
New Jersey topped the list of states with the highest percentage of taxpayers seeing a hike, at 10.2%. Maryland and the District of Columbia followed, at 9.4%, the report shows. In California, 8.6% of taxpayers will pay more and in New York 8.3% will have higher levies. North Dakota has the most winners from the new law, with 75.4% receiving a tax cut and less than 4% seeing an increase.
The decline in tax liability largely reflects the law’s lower rates for individuals, an almost doubled standard deduction and expanded child tax credits. Those who’ll pay more are mostly being affected by a new $10,000 limit on the state and local tax deduction. That especially has an impact on taxpayers who weren’t subject under the old law to the alternative minimum tax, which has been modified.
After the law passed, the Internal Revenue Service issued new withholding tables, directing employers to adjust how much tax money they take from workers’ paychecks starting in February, along with a new W-4 form for estimating allowances. Those withholding amounts are effectively a guess at what employees’ tax liabilities will be. Some taxpayers will find the tables to be a blunt tool.
Some taxpayers may find their withholding amounts are too low because the transition doesn’t take changes in itemized deductions or new credits into account. The agency is offering an online withholding calculator to allow taxpayers to double check.
Mark Mazur, vice president of tax policy at the Tax Policy Center, said taxpayers who have itemized in the past and have more complicated financial pictures should recalculate their withholding to make sure they don’t have any surprises and find out they owe the IRS money next year.
But for people with simpler finances, “the new tables are likely just as accurate as the old,” Mr. Mazur said.
About 65% of taxpayers will receive a tax cut in 2018, averaging $2,200 from the new law’s individual provisions, while 6% will receive an increase of about $2,800, according to the Tax Policy Center. Nationwide, 6.2% of taxpayers in the top 20% income level can expect an average increase of $8,800.
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