That’s because millions of Americans, including one Cincinnati woman, are finding their refunds smaller this year. Alicia Elam is a busy mom who home schools her two children, and takes care of four adopted dogs at her Forest Park home.
Until this year, Elam depended on the large the tax refund she received each year. But this year, she said, “it is approximately half of what we’ve received before.” Like many taxpayers, Elam will receive a smaller refund this year. In her case it is a lot smaller.
“The last couple of years we’ve received between $6,000 and $7,000 back, this year we’re only getting approximately $3,200 back,” Elam said.
While her change is among the most dramatic, the IRS reports the average refund is down 8 percent in 2019, as a result of last year’s tax cut. Elam is now getting a bigger weekly paycheck, and is very appreciative of that. But in return, she now has a smaller refund check.
“It was great,” Elam said of her refunds, “because we could use that refund for large repairs or we purchased a lot of beef every year and we used our income tax for that.”
That has all changed now. Accountants report they are hearing from a lot of people with smaller tax refunds like Elam, but also some people who are also getting larger refunds this year, due to the larger standard deduction
“If you’re confused by it all, talk to a pro,”say Blue Ash CPA Roy Mitchell. “Talk to a professional, that’s the best way to go,” he said, “because your filing software may not explain why your refund amount is so different this year.”
Reasons for Smaller Refunds
Mitchell says there are three main reasons you may see a smaller refund.
- The loss of the $4,100 personal exemption, which until this year reduced your taxable income by four grand.
- A new limit on state and property tax deductions to $10,000. This primarily affects people in high tax communities, in homes valued above $300,000, who used to deduct $15,000 or more per year in state and local taxes.
- Reduced payday withholding, after the IRS lowered tax rates last February. If your paycheck was bigger starting last February 15, it wasn’t all due to the tax cut. Part of that bigger check was the result of adjusted withholding, where Uncle Sam took out less.
“The impact of the reduced withholding is now surprising the most people,” says Mitchell. “The government adjusted the tax tables in anticipation that most people would be seeing a reduction in taxes, so the IRS adjusted the tables so less tax would be taken out.”
Result: A smaller refund in many cases.
Reasons For Larger Refunds
However, Mitchell says some of his clients received larger refunds this year. Those are primarily people who always take the standard deduction, and don’t itemize. The standard deduction this year increased sharply to $12,000 for individuals, and $24,000 for married couples.
Result: If you have a simple return with the standard deduction, there is a chance your refund is higher now.
How Can You Fix It?
Mitchell says it is too late to fix the refund for this year, unless you make a large IRA or charitable donation by April 15, which can still reduce your taxable income. However, if you depend on a refund for springtime spending, or to pay off credit card debt, he says you may want to increase your withholding going forward. Talk to your employer’s HR or accounting department for instructions on how to do that.
Alicia Elam understood what what was happening. “We were watching that less taxes were being taken out, so we were prepared for it.”
She realizes that almost everyone got a tax cut — not a tax hike — last year. But she is considering readjusting her withholding, and you may too, so you don’t waste your money.
Source: WCPO 9 Cincinnati