How Trump’s Tax Policies Are Still Impacting Your Refund
A tax refund can be a nice windfall — last year, the average individual refund amount was $2,707. Americans can utilize this money to pay down debt, add to their savings, invest in the market — or, yes, to splurge on something fun. Whatever you plan to do with the money, you likely are hoping for as high of a refund as possible. And even though Donald Trump is no longer president, his tax policies may still be affecting the tax refund you receive.
Here’s a look at how the former president’s tax policies can impact your refund this year — for better or for worse.
How the Tax Cuts and Jobs Act Impacts Your Refund
“Effective beginning with 2018 tax returns, the Tax Cuts and Jobs Act, as indicated in its name, included numerous provisions to cut taxes and increase refunds,” said Jennifer Marshall, director of tax services at The Bryn Mawr Trust Company.
Under this act, income tax rates were cut and the standard deduction was increased to $12,000 for single filers and $24,000 for married filing jointly. In addition, a new 20% deduction on qualified business income was added, which could potentially increase refunds.
“It’s interesting to note that these changes caused a decline in refunds for taxpayers in 2018 as the withholding tables were adjusted and many individuals did not have enough withheld to cover their tax liability,” Marshall said. “While the standard deduction was increased, there were several itemized deductions that were limited or eliminated, including a $10,000 cap on the deduction of state/local income taxes and real estate taxes, and the complete elimination of miscellaneous itemized deductions.”
How the Setting Every Community Up for Retirement Enhancement (SECURE) Act Impacts Your Refund
“Effective beginning in 2020, this tax act made changes to retirement plans, including a change to age 72 from 70 ½ for when distributions are required to be made from IRA accounts,” Marshall said. “This would have had a refund impact on a limited number of individuals; however, an additional provision enacted later would go on to eliminate the requirement to take a distribution for 2020.”
Recent Changes: Tax Year Deadline Dates You Need To Know
How the Coronavirus Aid, Relief and Economic Security (CARES) Act Impacts Your Refund
“Enacted in response to the economic impact of COVID-19, this tax act is the one that eliminated the mandatory distribution requirement for many retired Americans with IRA accounts,” Marshall said. “Careful review was required for these situations since tax withholding is often elected with these distributions, so the suspension of the distribution could also have an impact on the amount of tax that people had paid in.”
How the Economic Security Act Impacts Your Refund
This act provided economic impact payments to individuals of $1,200 with an additional $500 for qualifying children under the age of 17. These payments are not taxable and therefore would not have an impact on 2020 refunds, Marshall noted.
How the Taxpayer Certainty and Disaster Tax Relief Act of 2020 Impacts Your Refund
“This tax act provided an extension or made permanent several provisions or deductions that would have otherwise expired, including the lower 7.5% AGI limitation on medical expenses and the exclusion for the discharge of indebtedness on a qualified principal residence,” Marshall said. “That exclusion will prove extremely important to Americans going through mortgage issues as a result of COVID-related reduction in income.”
What These Policies Collectively Mean for Your 2020 Tax Year Refund
“How all these provisions have impacted 2020 refunds is all over the board,” Marshall said. “Many taxpayers have taken a hit to taxable income resulting from complications of the COVID-19 virus. How that impacts the refunds that will be issued will be dependent on how your tax payments are normally made. Those with changes to income covered by tax withholding should feel the least amount of impact. However, for those individuals making tax payments outside of withholding, there was a necessity to review those quarterly payments very carefully this year.”
More From GOBankingRates
- Nominate Your Favorite Small Business and Share With Your Community
- Should the COVID-19 Vaccine Be Required? Take Our Poll
- What Income Level Is Considered Middle Class in Your State?
- 20 Ways To Pay Less at Costco