The first tax season under the Tax Cuts and Jobs Act is off to a rocky start. Not only has the IRS had to cope with the new legislation, which was passed at the very end of 2017, but the government shutdown that occurred in January left the agency with a sizable backlog of taxpayer questions, including 5 million pieces of unopened mail. Now, the IRS has another problem on its hands: angry taxpayers. This year’s earliest tax filers have started to receive their tax refunds, and they aren’t happy. According to the IRS, the average tax refund this year is $1,865, which is 8.4 percent smaller than last year’s.
Although the Tax Cuts and Jobs Act lowered the income tax rates for most filers, it also eliminated many deductions and exemptions and changed the way withholding is calculated. As a result, many middle-class filers who expected a larger refund check this year will in fact be facing a smaller one. Here are the five reasons your tax refund might be lower in 2019.
1. New Withholding Tables
Part of the 2017 Tax Cuts and Jobs Act was a new set of withholding tables. Before the new tax reform bill, it was more likely for the IRS to withhold too much from your income, which meant that taxpayers received less money in their paychecks, but a larger tax refund when they filed. Under the new system, underwithholding is more likely than overwithholding. The result? Your paychecks are slightly larger, but at tax time, you’re more likely to be cutting a check to the IRS.
2. Late Release of Withholding Tables
While the Tax Cuts and Jobs Act was rushed out at the tail-end of 2017, the new withholding tables were not released until April 2018. As a result, some employers neglected to implement the new withholding requirements in time. This calculator from the IRS can help you determine if you’re withholding the right amount.
3. Miscellaneous Deductions No Longer Available
Deductions for home equity loan interest, work-related expenses, and home office use are no longer available under the new law. The deductions for charitable contributions and mortgage interest have also changed significantly, making them more difficult for most filers to claim. While in many cases, these changes have been off-set by the larger standard deduction, filers in professions with considerable work-related expenses, such as real estate agents, lawyers, and trucker drivers, or with large interest payments on their mortgage or home equity loan, could feel the pinch.
4. State & Local Tax Deductions are Capped at a $10,000 Property Deduction
Each year, Americans pay taxes on the local, state, and federal levels. When the federal income tax was instituted in 1913, Congress added an uncapped deduction for state and local taxes so that income would not be taxed twice. However, the SALT tax breaks disproportionately favor high-income earners in states with heavy income, sales, and property taxes (New York, California, and, yes, Connecticut). The SALT deduction was one of the largest loopholes in the tax code and a particular favorite of Connecticut residents, who have the second highest tax burden in the country. According to former Governor Malloy, the new IRS rules will effectively raise taxes for over 200,000 Connecticut filers.
Sara McKinney
saractag@gmail.com
As Cowen Tax Advisory Group’s Digital Content Marketing Specialist, Sara provides in-house copywriting and manages the company’s electronic records system, email marketing, and blog.
