Why People Are Outraged at Lower Tax Returns, But Probably Shouldn’t Be
The 2018 tax season left many people confused and frustrated by overall lower tax returns. On average, refunds were 9% lower this tax season. This means that many taxpayers will see a smaller tax refund than they are used to. However, most Americans also received an overall tax cut in 2018. How can both of these statements be true when they seem to contradict each other?
Lower Tax Liabilities Overall
According to analysis by the Tax Policy Center, individuals tax liabilities are down approximately $1,600.
To reflect the lower taxes passed, the IRS released new withholdings tables to determine how much employers should take out of employee’s paychecks, which immediately put more money in workers’ pockets. This means by the end of the year, the government withheld less than they should have if you were looking for a similar refund to prior years, but you received more money in each paycheck instead. The average tax refund was down approximately 16% from last year. Basically, what the Trump administration opted for was to create a short-term political talking point by saying “look your paycheck went up!”
In a perfect world, each person would pay in exactly what they should owe, meaning the government gets exactly their cut and then neither party owes money come time to file your annual tax return. Economics says that this is the better deal as getting it earlier in the year is theoretically worth more due to the time value of money.
The decision ultimately lies with the taxpayer. Would they prefer to get a refund at the end of the year, what some people look at like a built-in savings account or bonus, or would you rather get it ratably throughout the year. The problem is, nobody realized this was the case until it was too late, in 2019, when it came time to file taxes.
Whatever your dream refund is, we can help. We can review your withholdings and help you adjust them for the remainder of 2019 to optimize your tax refund. Consider it a mid-year check-up on your financial health. Schedule an appointment with us today online or call us at (586) 468-0200.