If you’re counting on a big tax refund this year, you might not want to hold your breath.
Many people filing their IRS tax returns early this year are finding that their refunds are smaller than in the past — or that they actually owe money to the government.
“There are a lot of surprises this year,” said Melissa Labant, director of tax policy and advocacy at the American Institute of CPAs. “It’s becoming real.”
So far, the average tax refund has dropped from $2,035 last year to $1,865 this year, IRS reports show. And fewer refunds — 4.6 million compared with 6.1 million last year — have been issued so far this year.
The difference is the Tax Cuts and Jobs Act, approved in 2017 under President Donald Trump, that, among other things, adjusted tax withholding tables to take fewer tax dollars from paychecks throughout the year.
As a result, anyone who didn’t adjust their withholding rates — the amount employers withhold and send directly to the IRS — might not be paying enough in taxes and might owe the government money due by April 15.
If that’s not what you want in future years, it’s time to take action now, Labant said.
“Take your tax situation into your own hands and adjust your withholding,” she said. “And if you are uncomfortable, or want to have a better understanding of the tax situation, talk to a CPA.
“This is not an easy issue.”
Anyone who wants to change their withholding rate can fill out a W4 form and turn it in to their employer.
Most people saw at least a small increase in their take-home pay last year, as tax withholding tables were adjusted under the tax cut bill.
There’s a chance anyone who adjusted other paycheck deductions or saw health insurance premiums rise might not have seen the increase.
But the IRS warned taxpayers last year that many were at risk for not withholding enough from their paychecks.
“As a result, many may receive a smaller refund or even owe tax, especially if they did not adjust their withholding after the withholding tables changed,” according to an IRS statement.
This isn’t the only change that came as a result of the 2017 legislation, said Jennifer Vogle, a senior tax associate with H&R Block.
There were countless adjustments, including a change in standard deductions and the bar that must be reached to file itemized deductions, something fewer people likely will be able to reach.
And “most people are in a lower tax bracket this year, which is a good thing,” Vogle said. “The refund is smaller, but they are getting more money throughout the year.”
Many clients Vogle has worked with so far this year understand they’ve been receiving part of their refund each paycheck since February 2018.
“They are OK with this,” she said.
Tax preparers stress that people shouldn’t jump to conclusions until they see how this all pans out.
So far, more than 16 million tax returns have been received by the IRS, down from the 18.3 million turned in at the same time last year.
Filings might be down because of the government shutdown last month.
But one thing is for sure.
Whether or not the federal government shuts down again, because Congress and Trump can’t agree on funding for a border wall, taxes will still be due no later than April 15 — no matter what, H&R Block officials said.