Taxpayers expecting a larger refund or a refund at all from Uncle Sam may have suffered through a day of reckoning on Monday.
The IRS filing deadline arrived with Congress’ 2017 tax cuts in the rearview mirror. But some Americans, particularly those who did not adjust their withholdings, may wonder where the money went. Many taxpayers and occasionally the IRS itself seem dazed and confused, said local tax preparer Bruce Brown.
An estimated two-thirds of Americans have seen their income taxes go down due to the tax cuts, according to the Tax Policy Center. Meanwhile, H&R Block reported Monday in an email response to questions that its clients have seen a 24.9 percent decrease in tax liability on average this year.
But the tax-preparation giant said its surveys show nearly 80 percent of Americans did not update their W-4 last year, “resulting in a bump in their paychecks throughout the year, sometimes more than their taxes decreased.”
Parsing those numbers, it said tax liability dropped $1,200 per taxpayer on average, but refunds rose just $43, meaning an average of $1,156 went into paychecks during the year beginning in March 2018.
That’s about $50 per two-week pay period during the last tax year.
Ollie Hartgroves, who has been preparing returns five decades at Hartgroves Tax Service, said his blue-collar clientele pays heed to taxes once a year.
“All are getting back less money than the year before, but they are taking home more money each week than the year before,” Hartgroves said. “I discuss the situation with them, tell them to tell their employer to take more out of their check. They’re not confused once they’re informed.”
Tax reform represented the largest change to the tax code in 30 years. Meanwhile, the Internal Revenue Service changed withholding tables in February 2018, automatically adjusting take-home pay. All these moving pieces, according to H&R Block, “have made it hard for people to understand the (tax cut) impact on their individual situation,” said its email response.
Bart Hatfield, a Houston volunteer with AARP’s Tax-Aide program, with supervisory responsibilities in Texas, New Mexico and Colorado, said he has seen a decline in the number of clients itemizing their taxes since changes in the tax code doubled standard deductions to $24,000 for married couples filing joint returns, $18,000 for household heads and $12,000 for individuals.
“Typically 8 to 10 percent of our clients itemize. Now it’s less than 1 percent,” he said. “The child tax credit, which increased from $1,000 to $2,000 per child, helps a lot of our low-income families with children.”
He echoed comments from others about the importance of withholdings.
“People often equate taxes owed with refunds,” he said. “They jump to conclusions if the refund goes up or down. We explain the difference between the two. Most taxpayers are getting a break. Their refunds may not show it.”
Usually, about 85 percent of households file their returns between late January and mid-April. Some taxpayers request an extension until Oct. 15. Possibly due to muddled messages, about 2 percent fewer returns had been filed through late March than in years past, according to a report in Atlantic magazine dated March 29. The magazine speculated that the “laggards” may be procrastinating in hopes the IRS will cast more light on the subject.
Brown, the part-time tax preparer and chief financial officer at Mission Waco/Mission World, said that may not prove an effective strategy.
“Some are wanting clear-cut answers, and there are no clear-cut answers,” he said. “Contact the IRS about a particular point, and you get a 200-page response. Ask for clarification or particulars, they say, ‘Let me think about that,’ or, ‘Well, it could be this.’ You can’t hold them accountable.”
He said tax code changes that created non-reimbursed expenses are wreaking havoc with some returns. Employees no longer can deduct expenses related to meals, entertainment, office supplies, books or mileage.
“Those counting on that deduction before now have to shoulder their own expenses, and those could be substantial,” said Brown.
Keshia Bridges Miller, co-owner of Prosperity Tax Service, said now more than ever it is vital to keep clients informed of tweaks in tax law.
“Our service is relationship-based,” she said. “After tax season last year, we began feeding information to our clients, some of it on Facebook, keeping them abreast of what’s happening, what’s going on, letting them know they may be getting a little more money back throughout the year.”
She added, “Many took our advice to check on exemptions and withholdings, to keep their check stubs handy so there would be no big surprises. Some clients were ready, some not in our communication circle were not. A good portion of our clients have been with us since the beginning, 13 to 14 years now, and we try to look out for their best interest. They are Facebook friends, Instagram friends, and we expect to hear from them and enjoy it.”
The New York Times reports that experts have mixed views on whether the tax cuts are delivering on what supporters promised.
The Tax Policy Center estimates that 65 percent of people paid less under the law and that just 6 percent paid more. The rest saw little changes in their taxes, according to the Times. The Joint Committee on Taxation — Congress’ nonpartisan team of analysts — found that every income group would see a tax cut on average. The Times also notes that the left-leaning Institute on Taxation and Economic Policy determined in a December 2017 analysis that every income group in every state would pay less in 2019.
But that same New York Times piece cites surveys showing that most people did not equate higher take-home pay with the tax cut.
That realization may arrive with tax day, H&R Block analyst Nathan Rigney told the Times, but “it’s little consolation to discover that you received a couple thousand dollars during the year but you already spent it.”
Tax preparers say the public must learn from the knot they may feel in their collective gut this year. Tend to those withholding issues, or tax time 2020 could be even more unsettling. The tax reforms and changes that took effect in March last year will run their course throughout all 2019.
Taxpayers who did not meet Monday’s deadline may pursue extensions providing temporary relief and avoiding penalties and interest.