Well, if you’re like a lot of people, you’re probably happy to be getting any money but you’re not exactly overwhelmed, either.
After all the talk of big tax cuts, tax refunds are up on average 1.4% nationwide — and up 2.6% or $78 a pop in Michigan — based on newly prepared data from H&R Block. The data represents H&R Block customers who received a refund last year and a refund this year, so it does have its own limitations. The data is through March 31.
The tax refund story, of course, kicked off with miserable headlines based on early returns back in February. The Internal Revenue Service initially reported a 16.7% drop in average federal refunds for tax returns filed from Jan. 28 through Feb. 15.
Since then, things don’t look nearly as dire.
- The comparable IRS data: The average federal income tax refund was $2,873 through March 29 — down 0.7% from a year ago.
- The latest IRS data: The average federal income tax refund was $2,833 through April 5, down 1.1% from a year ago.
Basically, tax refunds look flat so far after sweeping tax cuts. So what gives?
“The thing that jumps out is, most people did get a tax cut but, as expected, it didn’t show up in their refund,” said Nathan Rigney, lead tax research analyst at the Tax Institute at H&R Block.
Nationwide, tax liabilities are down on average $1,200 but tax refunds are up just $43 on average, based on the H&R Block data.
The good news? You could be better off after the largest change to the tax code in 30 years. The H&R Block data shows that the overall tax liability is down 24.9% for its clients on average. In Michigan, the average tax liability overall is down 24.7% or a savings of $967.
“The tax cut was fairly significant for a lot of taxpayers,” Rigney said.
Obviously, averages do not apply to everyone, particularly when you consider all the moving parts that influence your tax bill. Do you have a mortgage? Do you live in a high-tax state and pay super high property taxes? Do you have children age 17 or older?
Many people, of course, view their tax refund as their “bottom line.” But it’s really not. One thing is true for everyone: The size of your tax refund doesn’t determine whether you saved money or not under the Tax Cuts and Jobs Act of 2017.
The trouble is that many people already received a good deal of their tax breaks via their paychecks in 2018 and, most likely, already spent it. An average of $1,156 — or less than $23 every week — went into paychecks beginning in last year, according to H&R Block. We started seeing extra cash in our paychecks beginning in February 2018, thanks to changes in the tax withholding tables. The change automatically adjusted your take-home pay.
To see the impact of the tax cuts, you’d need to study the side-by-side comparison of your tax liability. Many tax preparers, such as those at H&R Block, review that data with clients.
“But often, many people don’t even want to hear it if they’re not seeing a huge refund like they had expected,” Rigney said. “It doesn’t provide much consolation if they owe money. It’s hard to explain — and avoid the emotions in it.”
The H&R Block refund data in this report doesn’t take into account people who received a refund last year and owed money this year. The data is also limited to people who were H&R Block clients last year and this year. In some cases, many people who got a refund last year might owe money this year, too.
“There certainly are fewer refunds,” Rigney said.
The latest IRS data shows that the total dollar amount of tax refunds was down 2.6% to $220.8 billion through April 5. That’s down $5.8 billion. Some people experienced more tax pain than others, of course, as new rules went into place on our 2018 tax returns.
The refund story tended to be more disappointing for some who itemized their taxes in both 2017 and 2018, according to H&R Block. While the tax liability dropped on average 36.6% for that group of clients, their tax refunds dropped 22.7%. So they owed less in taxes overall but their tax refunds ended up far smaller than average.
Homeowners who deducted their mortgage interest in both years saw their tax refunds drop an average of 11.8%. But their tax liability dropped on average 28.3% based on H&R Block data.
“The benefit of lower overall taxes showed up in their paycheck, instead of their refund,” H&R Block stated.
And, yes, some people did get a nice surprise when it came to their tax refunds. Taxpayers who took the standard deduction in 2017 and then took the standard deduction again on their 2018 returns saw their tax refunds increase on average 6%.
Outcomes, of course, varied by states as well. North Dakota saw the largest increase in average federal income tax refund, up 6.7% or $202. South Dakota was up 6.5%. Idaho was up 5%. Montana was up 4.9%. Arkansas was up 4.5%. Arizona was up 3.5%. Washington, D.C., saw the largest drop in average tax refunds, down 6.1% or $172. New Jersey’s average refund was down 5.7%. Maryland was down 5.6%. Connecticut was down 4.2%.
Source: Detroit Free Press