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Look at federal taxes paid, not size of refund

As Americans file their taxes by this Monday’s April 15, 2019 deadline, they might be surprised that most received a tax cut due to the Tax Cuts and Jobs Act of 2017, despite the media’s continuous coverage that tax refunds will be smaller than the previous year.

A Washington Post headline announced on February 10, 2019, “Millions of Americans could be stunned as their tax refunds shrink.” Two days later, The New York Times reported, “Smaller Tax Refunds Surprise those Expecting More Relief.” Two days after that, National Public Radio headline stated, “Anger, confusion over dwindling refunds. Is Trump’s Tax Plan to blame?”

The media and potential presidential candidates have incorrectly implied that lower tax refunds in the current year is equivalent to paying higher taxes, misleading taxpayers and voters by looking only at the refunds instead of the actual 2018 tax liability.

When the Internal Revenue Service sent out new withholding tables early last year, after the government shutdown had delayed them, employers adjusted the withholding amounts downward in most cases from each paycheck, whether you noticed it or not.

So yes, some 2018 refunds paid in 2019 may be smaller but that’s because the vast majority of taxpayers paid lower withholding taxes throughout 2018.

According to the Patriot Post, an NBC News/Wall Street Journal poll revealed that just 17% of Americans think their taxes will go down as a result of the 2017 TCJA tax cut. Some 28% don’t know, while 27% say their taxes will remain the same, while 28% think their taxes will go up – the problem of combatting misinformation.

While some taxpayers may consider a big tax refund as a windfall, the fact is that tax refunds are nothing more than an interest-free loan given to the government by the taxpayer for more than a year. Why let the government hold your money without paying you interest just so you can get a refund?

The Heritage Foundation found that each of the 435 congressional districts received a tax cut and that the average American household paid about $1400 less in taxes than the previous year – the total taxes paid regardless of any refund.

Even the Treasury Department said in a recent news release. “There is a difference between a tax liability and a tax refund. The size of someone’s refund is a separate issue from whether their taxes have increased or decreased.”

Despite the lower tax rates and higher standard deduction ($24,000) for married joint filers and ($12,000) for single filers, the media also reported negatively on limiting state and local taxes (SALT) to $10,000, that until this year had subsidized federal taxpayers in high tax states at the expense of those residents in the lower taxed states.

Illinois is one of those highest taxed states along with California, New York, New Jersey and Connecticut. Especially, in our area there are many people whose state taxes and local property taxes exceeded the $10,000 limit and their tax liability may be affected.

In these states, even with the new, higher standard deductions, some taxpayers might have paid more this year than in previous years – one of the disadvantages of living in and voting for legislators who do not control their spending of our tax dollars; believing that the federal tax deductions will cover their excessive expenditures.

Even if you received a tax refund last year and this year owed a few hundred dollars, you must still examine the total taxes paid for comparison purposes. Your employer may have incorrectly calculated the withholding amount and your total tax liability for 2018 might still be less than previous years.

Also, the New Child tax credit doubled from $1000 to $2000 per child and this larger “credit” is subtracted from the bottom line of the tax bill and more than offsets the elimination of the dependent personal exemptions for most taxpayer families.

Taken as a whole, the tax changes simplified the taxpaying process for the typical taxpayer and according to the Tax Policy Center cut the tax liability for 90 percent of middle-class American families earning between $40,000 and $200,000 per year, while the Tax Foundation estimated that those families would receive an average tax cut of 1.7 percent.

If you want to know how the tax reform affected your family, you would be correct to compare the amount in taxes you paid for 2018 and the previous year’s taxes rather than the size of your refund compared to the previous tax year.

 

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