I seem to be hearing/reading about many tax payers disappointed about receiving lower tax refunds this year than in the past. Before I put forth some thoughts on why this might be, let me say this: The government isn’t giving you a freebie with a tax refund! Unless you participate in the Earned Income Tax Credit (EITC), or some other minor hand out, all you are getting from the government is it returning money to you that you lent it over the year without any interest or credit for the money you lent it! If you REALLY want to see how you fared tax wise this year as opposed to last, compare Line 11 of this year’s tax return to Line 48 of last year’s 1040A or Line 44 of last year’s 1040. Only by doing this will you see whether you paid more or less in tax this year compared with last.
Now, if you are still wondering why your “refund” was lower, keep in mind, the Tax Cuts & Jobs Act (TCJA) reduced the Withholding Rates as of January, 2018, which means every employee was bringing home more with each pay check than they were bringing home in 2017.
However, if your actual tax paid went up this year, maybe there are some other things you might want to look into. As I stated in an earlier post, Individual Exemptions were eliminated, which were $4,050 for each household member. If you live in a 2 or 3 member household, you possibly made out OK because the Standard Deduction was increased to $24,000, and the Additional Child Deduction was raised from $1,000 to $2,000, which helps larger families, but the math gets a little dicey for families of more than four members. Did this impact your deductions, which impacted your tax paid, which impacted your refund?
Another major change was the doing away with the Interest Deduction for Home Equity Loans, which are VERY plentiful in the American economy. Could this be a part of your problem?
Last for this note, in light of the fact that the TCJA reduced the amount of State & Local Taxes (SALT) that could be claimed in the past down to a maximum of $10,000, folks might want to look into their State & Local Tax situation. According to Kiplinger in an article by Senior Editor Sandra Block and Senior Online Editor David Muhlbaun dated October 24, 2018, States with the Most to Least Friendly status are:
|Most Friendly||Friendly||Mixed||Not Friendly||Least Friendly|
|North Dakota||New Hampshire||Michigan||Rhode Island||New Jersey|
|South Dakota||North Carolina||Missouri||Wisconsin||New York|
|West Virginia||South Carolina|
I am not saying or even meaning to imply that the TCJA is perfect. No legislation is EVER perfect; however, according to a paper dated June 13, 2018 written by William G. Gale, Hilary Gelfond, Aaron Krupkin, Mark J. Mazur, and Eric Toder of the Tax Policy Center Urban Institute & Brookings Institution titled: Effects of Tax Cuts and Jobs Act: A Preliminary Analysis, “Under TCJA, 80.6 million tax filing units (45.8 percent) will pay no federal income tax (or receive a net tax refund) in 2018. Under prior law, 76.4 million tax filing units (43.4 percent) would have paid no federal income tax (TPC 2017c)”. That’s a 4.2 million increase in folks that will not pay any tax due to the TCJA.
Finally, in case you’re REALLY concerned about your taxes, just to get a little political here, folks might want to take a close look at the home state of Democrats that have declared their candidacy for the 2020 Presidential Election, with an eye to the table above: Booker-New Jersey; Gillibrand-New York; Harris-California; Klobuchar-Minnesota; etc. Let’s not forget the “perpetual independent”, Sanders-Vermont. Something to consider if you think you have “tax problems” now.