Was Your Tax Refund Lower Than Expected This Year?
Did you expect have your tax refund lower this year? You are not alone! In fact, the IRS put out a report by the Treasury Department on February 14th. The IRS report said that, the average refund it is paying in 2019 has gone down to $1,949 from $2,135 in the prior year. On average the tax refund decrease was $186 per taxpayer. In addition, the number of taxpayers filing returns so far has gone down from 13.5 million last year to 11.4 million this year for the same period. Do you think someone is procrastinating because they don’t want to face the loss?
Did You Anticipate a Larger Refund this Year?
The reality is, there was no loss of money on tax refunds this year. With all the hype about how tax reform would reduce taxes, taxpayers were anticipating larger refunds this year. However, instead they are receiving less, on average. This has left the Republican lawmakers who passed the tax reform scrambling to explain why the refunds are lower.
Average Tax Refund is Down
Lower refunds can be especially harmful to taxpayers who count on their refunds to pay their annual property taxes, holiday spending and other debts. Many count on the refunds to pay for summer vacations and other discretionary spending. Some who normally receive refunds may even find themselves owing money this year. That can be difficult pill to swallow. Let me as you this, why are you using the IRS as a savings account? Don’t you want your money in your back account with interest?
Why are you using your tax withholdings as a Savings Account?
It is our recommendation that people only withhold what is absolutely necessary to cover your tax burden for the year. This means, consulting with a tax expert, and determining the best rate on the tax table for your income. Then take that difference that you take home and open a Christmas Club or Vacation Savings account, try not to withdraw from it until you reach your goal. While it is nice to get that big fat check in the spring, the reality of it is, it is your money and should be sitting in your coffers. Let’s move on to why your tax refund was lower this year.
Actual Tax Generally Lower
Although most taxpayers will actually pay less in taxes this year, this does not necessarily translate into more for your refund. For most taxpayers, the tax cut gave more take-home pay during 2018, instead of adding to their refunds at the end of the year. This mean that the economy had more spending, which means more money put into it. This decrease in withholding spread over 52, 26 or 24 paychecks is far less noticeable than a lump sum that you expect for refund. Let me explain more as to why your tax refund was lower this year.
How Did My Tax Refund End Up Lower this Year?
How did this happen? The culprit is generally the amount of tax you had withheld from your paycheck each payday. The tax reform was passed at the very end of 2017. The timing behind tax refund did not allow the IRS sufficient time to adjust the employer withholding tables or the W-4 – Employee’s Withholding Allowance Certificate. Therefore the IRS didn’t have time to accommodate the new law. When the IRS did have time, a couple of months later, the revised withholding tables and W-4 had lower withholding, leading to the lower refunds. So the tax withholding tables were too low – bottom line.
So, Why Was Your Refund Lower This Year? Did the IRS Know?
The IRS was aware of this and sent notices almost weekly cautioning taxpayers that the lower withholding would lead to lower refunds. The IRS even sent warning that owing instead of receiving a refund is possible. However, these notices were not necessarily sent to your mailbox per se. Rather they went out through the media or email. That is, if you are on the IRS Guidewire or someother notification outlet. I encourage you to sign up here for our free newsletter so you always know what the IRS has up it’s sleeve. We do all we can to keep you up-to-date on the latest information from the IRS. By the way, the General Accounting Office estimates that the number of taxpayers who will owe taxes this year will increase from 18 to 21 percent.
Was Your Tax Refund Lower This Year? Do You Need Help?
Do you want to avoid the same thing from happening next year? Call our office to compare your current withholding to your projected tax liability so that you can adjust your withholding to produce the result you desire on your 2019 return. So, are you one of those who had a tax refund lower this year? Call me, Alex Franch, BS EA at 781.849.7200 or email the office at firstname.lastname@example.org to secure help with your small business accounting needs. Also, you may book an appointment online here and you can meet with any of our tax experts. We are available by appointment at our three convenient locations in Norwell, South Weymouth and Dedham, Massachusetts. Check here for our client discounts.
Alex Franch, BS EA
Alex is a Tax Specialist and Partner at Joseph Cahill & Associates / WorthTax. He has a diverse background including a Bachelor of Science from Boston College in Mathematics and extensive military service. Alex is an Enrolled Agent and has a decade of tax preparation experience. He is passionate about serving businesses with tax and financial planning strategies. Mr. Franch is licensed by the Financial Industry Regulatory Authority (FINRA). He holds a Series 6, 63, 65, and 7, and by the Commonwealth of Massachusetts Division of Insurance. Alex Franch is a registered representative of, and offers securities and investment advisory services through, Commonwealth Financial Network. He is a registered broker-dealer, Member FINRA/SIPC.
Tax Sources and Resources
- Six New Schedules File With The Form 1040
- IRS Warns Victims of Ghost Tax Return Preparers
- Where’s My Refund? Tool
- Who Underpaid 2018 Taxes? IRS Tax Break
- Get Ready for Tax Season, Tax Time 2019 Part 2
- Tax Time 2019 is Around the Corner, Are You Ready? Part 1
- 12 Easy Way to Get Your Personal Finances in Shape for 2019
- Protect Tax Data, Keep All Sensitive Tax Data Safe
- Tax Reform is Confusing Part 2
- Tax Reform is Confusing! Here is a Side by Side Comparison Part 1
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- We Have a New Tax Preparation Office
- Emergency Savings: 67% of People Don’t Even Have $500 Emergency Fund
- Did You Donate to Charity?
- Don’t Expect the IRS to Take Your Word on Charitable Deductions – Substantiate
- Charitable Contribution: Tax Plan for Potential IRA-to-Charity Provision
- Home Office Tax Deduction Good or Bad?
- 529 Plan: Higher Education, Learning the Hard Way
- Minimizing Tax on Social Security Benefits
- Employee Business Expenses: Tax Reform Suspends Tax Deduction