Tax Strategies & Credits

Disappointed in Your Tax Refund? It's Time to Review Your Withholding

Disappointed in Your Tax Refund? It's Time to Review Your Withholding

Ever since the much-heralded tax reform act was passed, Americans have been promised that they’d be paying far less in taxes. Unfortunately, for a significant number of taxpayers that did not translate into a larger tax refund, and that’s what they had been looking forward to. According to the IRS, the average refund paid out in 2019 dropped by about 1.7% from what taxpayers received in 2018, from $2,780 to $2,725, so if you were disappointed in your refund check, you’re in good company. 

The response to the reduced refunds has ranged from sighs to shrieks and has put Republican lawmakers in the uncomfortable position of having to explain what happened to the checks that many people have come to view as a sort of bonus. They have plans for it, including paying real estate tax bills or funding vacations or the purchase of other big-ticket items. The explanation is fairly straightforward — the tax cut was seen incrementally in their take-home pay, and they did actually pay less in taxes — but that’s not much solace to those who had counted on the money, and especially not for those who actually ended up owing the government.

According to the General Accounting Office, the number of taxpayers who owe money grew by three percent this year, up to 21 percent from last year’s 18 percent, and that may well be why the number of returns that were filed dropped from 13.5 million to just 11.4 million by mid-February. To make matters worse, what was seen in 2018 was only the beginning.

Taxpayers who have found themselves in this quandary may be annoyed, but the IRS tried hard to warn them. The agency sent out reminders on a regular basis, alerting them to the fact that because the tax reform act had been passed so late in 2017, the revised withholding tables that their employers rely on to determine how much to deduct from their weekly paychecks had not initially been adjusted, and that once they had been the withholding amount had been lowered. These notifications explained that refunds would be lower, or might disappear entirely, but in the end, few people made adjustments in order to boost their refund amount back to what it had been.

It is understandable that taxpayers opted out of increasing their withholding –nobody wants to reduce their take-home pay — but the result was still a disappointment for many when tax time rolled around. As you consider how the change affected you, keep in mind that if you have come to rely on your tax refund as a sort of forced saving account and you miss that effect, now is the time to make adjustments. You also need to remember that the impact will be bigger next year, as the lower withholding amount was only in effect for nine months of 2018, but will be in effect all year long for 2019. Talk to a tax professional to discuss the best way to structure your withholding so that you can avoid having to pay even more in taxes next year, and see a significant refund check when 2020 rolls around.

Spencer Wilson writes for TaxBuzz, a tax news and advice website. Reach him at [email protected].

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Spencer Wilson

Spencer Wilson

Spencer Wilson, EA is a tax preparer based in Long Beach, CA. Spencer Wilson Financial Management Services has been serving the Greater Los Angeles Area and Orange County since 2004. <br /> We began in the heart of Naples in Long Beach and we continue to work hard offering tax preparation and planning, business accounting and bookkeeping and payroll services . <br /> We have helped many different people and businesses succeed financially and take control over their finances.

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