Average tax refund 8 percent less so far
Others discover they owe money
Millions of Americans filling out their 2018 taxes are getting refunds this year that will be less than they expect, or they are discovering that they owe money to the Internal Revenue Service after years of receiving refunds.
The average tax refund check is down 8 percent, or $170, this year versus last year, the IRS reported Friday. The number of people receiving a refund has dropped by almost a quarter.
An IRS spokesman said not to read much into the early report because it only reflects returns processed through Feb. 1, and the partial government shutdown caused some delays in processing filings.
Still, people have taken to social media to vent their
anger, and many who do are blaming President Donald Trump and Republicans for their shrunken refund. Trump and congressional Republicans passed a major overhaul of the tax code in December 2017, the biggest legislative achievement of the president’s first year.
The Government Accountability Office warned last summer that the number of tax filers who receive refunds was likely to drop for the 2018 tax year and the number of filers who owe money would rise.
The agency pointed to an IRS estimate that about 4.6 million fewer filers would receive refunds this tax filing season. Another 4.6 million filers were likely to owe money after previously receiving refunds.
There is no estimate for how many people will still receive a refund but a smaller one than before. Some refunds have decreased because of the changes in the tax code made by the law, such as a new limit on property and local income tax deductions.
Some refunds have decreased because of how the IRS has altered withholding in paychecks.
A smaller refund, or a notice of taxes due, may seem like a sign that taxes went up, but generally that’s not true. According to the nonpartisan Tax Policy Center, 80 percent of filers received a tax cut, compared to about 5 percent who are paying more in federal income taxes. The tax cuts showed up in fatter weekly or biweekly paychecks for most Americans.
“There’s a difference between taxes and your refund,” said Joseph Rosenberg, a senior research associate at the Urban-Brookings Tax Policy Center at the Urban Institute. “People generally got a piece of their tax cut last year gradually in the form of lower withholding on their paychecks.”
Although many families received a tax cut, their refund is smaller this year because the IRS used the new tax law to make changes to the withholding tables — the amount the federal government recommends taking out of paychecks for federal income taxes.
The IRS was trying to set withholding levels so that more people would pay the correct amount of taxes, meaning they neither owe anything to the IRS at the end of the year nor receive a refund.
“Getting a tax refund means that you gave the government an interest-free loan because you overpaid your taxes,” said Nicole Kaeding, director of Federal Projects at the Tax Foundation, a right-leaning think tank.
In recent years, about 75 percent of filers received refunds, even though personal finance experts say it’s not a wise idea to boost withholding from paychecks to get one.
“It’s a mystery why taxpayers seem to be comfortable — and even happy — with getting refund checks,” said Rosenberg.
Many Americans prefer getting a one-time refund of $1,000 to $2,000 instead of an additional $20 to $40 in a weekly paycheck. Analysts believe that those Americans consider it a way to force themselves to save to pay off credit card debt, pay down a mortgage or support a large purchase.
Sal Ramirez, 20, earns $45,000 a year as a packaging designer in San Gabriel Valley, Calif. He said he received a refund last year of more than $1,200. He had expected that to increase under the new tax law, but he only got $900 this year.
“I am really frustrated with my refund this year. I was expecting a good chunk of change. I was going to put it toward buying a car,” Ramirez said, adding that he’ll have to save a few more months for the car.
Ramirez, who didn’t vote for Trump, couldn’t remember whether his total tax bill went up or down. He was just focused on his refund.
John Prugh of Ewing Township, N.J., was irate when he completed his 2018 tax return this month and discovered his refund would be $3,000 less than what he received last year.
Prugh, 39, considers himself “solidly middle class.” He is a manager at a Barnes & Noble bookstore, and his wife works for the New Jersey state government. They have two children.
Prugh’s overall tax bill is higher and his withholding looks a little lower. His family was affected by the new law’s $10,000 cap on state and local taxes, including property taxes and state and local income taxes. He said that in the past he normally deducted about twice that amount. He was also hit by the elimination of the ability to deduct mileage for work. The higher standard deduction under the new law did not counterbalance losing these other deductions.
But Prugh said he had no reason to think the family’s tax situation would change this year. He and his wife have lived in the same house for years, have received about the same pay in their jobs and have two kids.
“It totally feels like a scam,” said Prugh, who also didn’t vote for Trump. “I did still get a small refund, but compared to what I was expecting from previous years, it was a shock.”