- Most Americans got an increase in take-home pay in February 2018.
- Some deductions have been reduced or eliminated.
- You can adjust your withholding to control the size of your refund.
For many Americans, the only good thing about having to file your income taxes is the prospect of getting a big refund a few weeks later. But this year, taxpayers have been surprised to discover their refund is smaller, and many filers vented their frustrations by creating “TrumpTaxScam” and “GOPTaxScam” hashtags on Twitter, according to Yahoo Finance.
It’s still early yet, but the IRS reports that, as of Feb. 8, 2019, the average refund is more than 8 percent less than last year. The average tax refund in 2017 was $2,035. This year, the average is $1,949 so far. Here’s why your tax refund might be lower than you expected this year.
Possible Reasons for Smaller Tax Refunds in 2019
One reason for smaller refunds is the take-home pay increase most workers saw in last year. When the 2017 Tax Cuts and Job Act went into effect at the start of 2018 — the deadline for implementing the new tax brackets to an employee’s pay was Feb. 15, 2018 — the withholding amounts for most employees were changed to reflect the updated tax brackets. When this happened, most employees saw extra take-home pay in each paycheck.
The new tax law also removes and restricts some deductions, like the deduction for state and local taxes, which is now capped at $10,000. If you live in a high-tax state and you previously deducted your property taxes and other state and local taxes, you might see a smaller refund as a result of the new limit on that deduction.
What to Do If Your Refund Is Smaller Than You Expected
If you got a smaller refund this year than you expected, or if you had to pay the IRS when you filed your return, here’s what you can do:
- Consider what size refund you really want. If you get a big refund every year, you’re effectively loaning the government your money interest-free. You’d be better off to have less withheld, get a bigger paycheck and sock away a little bit of that in an interest-bearing savings account.
- Change your withholding. When you started your job, you filled out a Form W-4, which told your employer how much to withhold from your paycheck for taxes. You indicated whether you are married or single, how many dependents you have, and whether or not you have a second job. Even if none of those things have changed, you can make adjustments to the amount you have withheld. Use the IRS Withholding Calculator to figure your withholding and use that calculation to complete a new Form W-4 to give to your employer.
- If you are self-employed or your income varies throughout the year, you might want to consult a tax advisor to determine the correct withholding for your tax situation.
To get a better idea of your tax liability this year as opposed to last year, look at line 15 on your 2018 Form 1040. This is the total tax you were liable for in 2018. Compare this number to your total tax liability from your 2017 tax return. That will tell you whether you paid more tax this year than last year.
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