Taxpayers across the country are seeing smaller refunds this year than last. The major changes instituted by the Tax Cuts and Jobs Act have been in the headlines for more than a year now, but many taxpayers are only now understanding the effects. The Treasury Department estimates 80% of taxpayers are going to see a decrease in their total tax liability, but for those who are accustomed to large refunds and count on them each year the change is not entirely welcome.
Why are refunds down for so many taxpayers?
The new withholding tables were designed that way.
With the new tax brackets came new withholding tables. The new withholding tables released in January of 2018 were designed to produce the correct amount of withholding under the new rules and work with the existing W-4 forms already on file with employers.
Congressional Democrats have argued that the new tables purposely reduce over-withholding because of political pressure to keep more money in taxpayers’ paychecks each week, so that voters could feel the impact of the TCJA as soon as possible. The Treasury Department strongly denies this and cites the reasons below for the improved withholding accuracy.
The standard deduction doubled, while many others disappeared.
One larger deduction for everyone instead of a multitude of smaller ones means that the new withholding tables were able to more accurately predict the tax liability for a large percentage of taxpayers.
Taxpayers were urged to check their withholding.
Throughout 2018, the IRS and numerous news outlets bombarded taxpayers with reminders to check their withholding and update their W-4 with their employer. While there’s no hard data, it’s likely a greater number of taxpayers checked their withholding last year than normally would and so had updated, more accurate withholding.
Disappointed with your refund? At the end of the year your total tax liability is the same, whether you get a big refund or a small one. A smaller refund can be a good thing for your financial wellbeing. If you’ve always been in the big refund club, talk with a Bacon & Gendreau tax professional about a tax planning and withholding review appointment. It’s your money; let us help you hang on to more of it.