Expecting a Big Tax Refund? Don't Be So Sure

[question everything]

(snip)

Most households got tax cuts under the law. But tax cuts and tax refunds aren’t the same thing. The tax cut is the change in what people owed for 2018 compared with what they would have owed if Congress had done nothing. The refund is what happens when the IRS sends back any extra money people paid during 2018 or delivers any refundable tax credits.

(snip)

About two-thirds of households are getting tax cuts, paying less in 2018 individual income taxes than they would have under the old system. Many, but not all, will get larger refunds than they typically do. Many households already have received the bulk of their tax cuts. That is because the IRS changed the default rules for calculating how much is withheld from paychecks for taxes. Those changes took effect in February, though some taxpayers manually adjusted their withholding with their 2019 refunds in mind.

(snip)

Starting in tax year 2018, Congress replaced the personal exemption—a per-person deduction of more than $4,000—with larger standard deductions and increased child tax credits. The law also lowered tax rates for individuals and closely held businesses. Congress eliminated or curbed some tax breaks, such as the deductions for moving expenses, unreimbursed employee costs and state and local taxes... At the same time, the IRS says it expects more people than usual to owe taxes and penalties, including from people who usually get refunds. Those most at risk of underwithholding are people who used to itemize deductions but now don’t, households with two wage earners and people with complex situations, according to the IRS.

(snip)


The government urged taxpayers to adjust their withholding to get close to the refund they want or make sure they were paying enough over the year. But it isn’t clear how many people did that.

“People don’t understand this,” said Kathy Pickering, executive director of the Tax Institute at H&R Block Inc., which prepared 20 million U.S. tax returns last year. “People generally think they’re going to get the same refund as they did in the prior year.”

https://www.wsj.com/articles/expecting-a-big-tax-refund-dont-be-so-sure-11548594000 (paid subscription)

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Our taxes are about $250 higher than under the old system but, hey, Trump and DeVos and Ross get to keep their millions.

[MichMan]

1. Many taxpayers are ignorant

I know a few who usually get a big refund and act like it was some windfall gift by the government.

Having extra withheld to get a bigger refund makes as much sense as overpaying your electric or Visa bill every month, so they will be forced to send you a credit.

I would much rather have a tax reduction and no refund than the other way around.

[Squinch]

2. Frankly, all taxpayers are ignorant. My taxes are mildly complicated and I have an economics

degree, and I have not been able to pinpoint what my taxes are going to be.

They're going to be womba higher, but I don't know by how much.

[MichMan]

3. At least I understand that a tax refund is only my own money

I'm not sure everyone understands that simple fact.

But hey, I'm only an engineer

[Squinch]

4. I think that is very true.

[progree]

5. Not all refunds are a return of what the person paid in. Some people get the

earned income credit and the child tax credit, and a "refund", even though they paid nothing in either through estimated taxes or withholding or by any other means. Google: refundable credits.

A friend of mine was self-employed and paid nothing in, in any way, shape, or form, but got something like a $3,000 check.

[MichMan]

6. Tax Fraud is an issue when people deliberately cheat the system

Assuming your "self employed" friend worked on a cash basis and unreported income

It hurts all of us

[progree]

7. Nope, it's not tax fraud. Her reported income was $16,000 or $17,000 and has one child.

A single mom. (On edit: this was a 2006 tax return).

And her tax returns are done by a professional. I looked over one just to verify what was going on.

Assuming your "self employed" friend worked on a cash basis and unreported income

It's not "self employed". It's self employed without the quotes.

[MichMan]

8. Just hate it when people cheat the system. Good to know that wasn't the case

[progree]

9. 😂😂😂 Me too n/t

[PoindexterOglethorpe]

10. My taxes are just complicated enough that I cheerfully employee an accountant to do them.

Some years I've owed money, some I've gotten refunds, some are a wash. No matter what, it is well worth what he charges.

[rinopa]

11. Itemizing

The other issue was the capping of itemized deductions for state and local taxes at $10,000. Those in high tax states or municipalities were previously able to deduct them fully, but now are restricted to the 10K. This loss contributes to their higher federal tax bill as compared to previous years.