Will Your Tax Refund be Lower This Year?

Although it is not very far into the 2019 tax season, some tax filers are already discovering that their refunds are less than they were in the past.

According to the Internal Revenue Service, refunds dropped approximately 8.7%  throughout the first two weeks of the 2019 filing season. During this two-week period in 2018, the average refund was $2,135. This year, the average refund was $1,949 for the same period. Although the entire tax season cannot be judged by one two-week period, it may be the beginning of a trend.

Numerous individuals are closely watching the results of this tax season, as it is the first time citizens must file their returns under the new Tax Cuts and Jobs Act, which has now been in effect for one full tax year.

The new law has resulted in some broad changes since it was passed in December 2017, including major changes concerning itemized deductions, an expanded child care credit, and new tax brackets. Many people are still somewhat confused about how these changes may affect their tax bracket and subsequently seek the advice of a tax attorney. This confusion is also somewhat exacerbated by the fact that returns are being processed more slowly than in the past, which is primarily due to the partial government shutdown, which lasted 35 days.

There are several things that may lower a person’s tax refund this year. For example, those who did not adjust their W-4s to have enough taxes withheld may find that their tax refund is substantially lower. Some CPAs, such as Barry Kleiman, a principal at the large tax firm Untracht Early, state that approximately 20% of filers may not have had enough taxes withheld from their paychecks. Kleiman also states that the withholding tables were changed to reflect the different tax rates, but these tables do not reflect all the changes, such as those concerning itemized deductions. Therefore, certain taxpayers may receive more money in their regular paychecks, but lower refunds or in some cases, monies due.

Logan Allec, a CPA and author of numerous financial articles recommends adjusting expectations when it comes to this year’s refund. Allec suggests that with regard to refunds, it is a bad idea to include them as part of a household budget, particularly if they are being counted on for medical bills, vacations or other large purchases. However, making a mental shift from a tax refund to possibly owing taxes or receiving a substantially lower refund may be easier said than done.

Most tax attorneys also recommend that filers refrain from making any assumptions about the amount of their federal refund unless they have actually calculated the numbers in advance. Those who want to know if their tax refund will be lower this year would have to compare their tax liability for the year versus how much was paid through wage withholdings or other payments. Ultimately, expecting to receive a specific amount and making plans in advance for the anticipated refund is not a wise course of action for any taxpayer.