Millions are seeing smaller tax refunds. Here's what to do for next year.
JEFFERSON CITY — The biggest federal tax cut since 1986 was bound to bring huge changes to Americans’ tax returns.
For millions, shrinking refunds is one result.
One of the loudest warnings lawmakers and tax preparers gave in 2018 was to pay extra attention to tax returns when looking for changes and adjusting withholdings.
Many Americans depend on their tax refund as an extra springtime bonus. But that may not be the best idea, accountant Jeff Krieger said, as taxpayers should withhold just enough to cover what's due.
The average refund for 2018 is down about 9% from the previous year, the IRS reports.
For people like Nancy Fossett, this surprise is leaving her scrambling to make up the difference.
“I'm kind of on my own trying to make ends meet, and it really was kind of upsetting that I was just expecting a better return,” she said.
Fossett said that while she understands the goal is to break even, that isn't always everyone’s preference.
“When it comes down to it, most people in a lower income bracket would rather pay a little bit more taxes throughout the year and get a bigger check,” she said. “There's always bills, or you need car repairs, or there's always something that you aren't able to do throughout the year because your income doesn't allot that.”
Fossett's refund was about $400 less this year than last.
However, she said, she did not adjust her withholdings from 2017 to 2018, which is something tax preparers warned people to consider because of the changes from last year's tax changes.
Some refunds have decreased because of changes in the law, such as a new limit on property and local income tax deductions. Some have decreased because of how the IRS has altered withholdings in paychecks. Another factor for Missourians is the Department of Revenue's errors in its withholding tables.
Jeff Krieger said taxpayers should take a look at the bigger picture.
"I think what people really need to look at this year was what was the total amount of tax they paid last year, and what was the total amount of tax they paid this year," he said. "Not their refund or the balance due, but what was the actual tax number? And I think overall you’re going to see a lower tax."
According to the Tax Policy Center, 80 percent of filers received a tax cut, and about 5 percent paid more in federal income taxes. The tax cuts appeared in the form of larger weekly or biweekly paychecks for the majority of Americans, but Krieger said not everyone may have noticed that.
"If you had a change in your take-home check and you didn’t get a raise, you probably ought to ask about why you got an increase in your paycheck," he said. "That usually meant less taxes are withheld and then you could owe at the end of the year."
Krieger said, for the most part, the majority of his clients have been happy this tax season.
"Any time there’s a change, there’s gonna be people that are happy and there’s gonna be people that are upset," he said. "And if you’re one of the upset ones, make some changes so you aren’t upset next year."
Accountants advise to do the following for the 2019 tax year.
- If you have the flexibility to do so, put aside a little money each month instead of waiting for a reimbursement come tax season.
- Adjust your withholdings properly if your take-home pay went up and you still want a refund.
- When in doubt, talk to an expert.