Hello fellow taxpayers
What does this mean? If you have been listening to the news recently, all the pundits and the know-it-alls are telling anyone who will listen that the average taxpayer is getting 8.4% less on their refunds. Well, my fine fellow tax filers, it’s your own money. Let’s not forget that if you are getting a refund (not due to an extraordinary item), you paid too much. This money goes into the government war chest (or “wall” chest); is not earning interest on that money (not that you make much in a bank these days).
In reality, there are two reasons why refunds are lower this year. One is that your income went up, your deductions went down, and as such, your taxes went up. Couple that with reason number two is for W-2 receivers, you income withholdings were reduced starting February 2018.
When Congress passed the Tax Cuts and Jobs Act (I know you are tired of hearing about this, it’s the reason for all our problems); the Republicans (remember they passed this, like the Dems passed the Affordable Care Act in 2010) felt that everyone would get be better off and pay less taxes. So, what did they do? They instructed the IRS to reduce the amount that people would withhold each pay period. This way we would get more money each pay period. Many of us have our checks direct deposited, and many of my clients said that they had no clue what their net was.
So, when you get less withheld, even if your taxes went down, your refund is affected. You need to look at your tax liability on this year’s return versus last year’s return (exclude items that were vastly different) and then compare them. It is not the refund that will tell if the new law helped or hindered you. So far I have seen that it has hurt those with no kids and employees. It has helped those that are self-employed with profits (S-corps, landlords, and partnerships), but most of us are not so much as we are employees receiving a W-2.
So before you believe everything you read, seek out your trusty tax guru and ask the right question: Did I pay more in taxes than last year?