The average federal tax refund is down so far this year, but analysts say that’s not necessarily a sign that the 2017 GOP tax overhaul, President Trump’s signature legislative win, backfired.
At the close of the third week of the 2019 filing season, the average refund was $2,640, down more than $500 compared to a year earlier.
But the Republicans who wrote the tax law — and fact-checkers and analysts across the political spectrum — say that’s likely a sign of lower withholdings throughout the year, rather than taxpayers actually facing an overall higher tax bill.
“People who are focusing on the refund are actually asking the wrong question if what they want to know is, ‘Was the Tax Cuts and Jobs Act good for them?’” said Howard Gleckman, a senior fellow at the Tax Policy Center.
What’s most likely going on is taxpayers had too little money withheld from their regular paychecks over the last year, leaving them owing a little more to Uncle Sam when the final bill comes due. Many taxpayers, they say, wrongly equate the size of their onetime refund at tax-filing time with the overall size of their tax burden.
Most taxpayers still got a tax cut, albeit not as big of one as it may have seemed from looking at their paychecks in 2018.
Mr. Gleckman said annual tax refunds are “very important” to people, and that it’s only natural they’re going to be disappointed if they see a big year-to-year change.
“But that doesn’t mean that their tax liability is more or less than it was last year — it just means that their refund is different than it was last year,” he said. “If you got a tax cut and you are getting a smaller refund, what that probably means is you got more take-home pay through the course of the year.”
Democrats have still been quick to seize on the uproar and complaints on social media as some filers learn of the lower refunds coming their way.
Some have claimed it means Americans are seeing tax increases. Those claims have been roundly rejected by fact-checkers.
But other Democrats say the lower refunds do give credence to a complaint they lodged early in 2018, when they said the IRS’s new withholding tables issued after the tax cuts were too generous, setting taxpayers up for disappointment now.
“This same Trump tax law that handed hundreds of billions of dollars to corporations and billionaires is now a source of enormous financial anxiety for America’s middle class, and still the Trump administration expects them to be grateful,” said Sen. Ron Wyden, the top Democrat on the Senate Finance Committee.
The Treasury Department said in a letter released Tuesday that’s not the case, and noted that taxpayers won’t be penalized for under-paying their taxes if they pay 85 percent of what they owe on time.
“There was absolutely no manipulation of the tables and no ‘phantom windfall’ in taxpayers’ paychecks,” J. Brady Howell, a senior advisor in the department’s Office of Legislative Affairs, wrote to Senate Democrats.
Last year was the first under the 2017 overhaul, and April 15 marks the first deadline for most taxpayers under the new rules.
One major missing part of the puzzle right now is refunds for people who take advantage of the popular earned income and child tax credits.
By law, the IRS can’t issue refunds for people who claim those credits until Feb. 15, which was about three weeks after this year’s filing season started. The Treasury Department said the most recent data accounts for less than half the expected payments associated with those credits for the current filing season — a major contrast from the same period last year, when all of those credits had already been paid out.
“Those are among the people that have the largest refunds,” said Nicole Kaeding, vice president of federal and special projects at the Tax Foundation. “So we could see an increase, perhaps, in the next week or two as they process more of those refunds.”
Ms. Kaeding said the vast majority of Americans still saw a net tax cut in 2018 as a result of the tax law — though like Mr. Gleckman, she said taxpayers might not have noticed the comparatively smaller bumps in weekly or biweekly pay.
“They didn’t notice that less was withheld in taxes, but it was,” she said.
Another factor for the current filing season was the lengthy partial government shutdown, which resulted in many IRS employees getting furloughed or being called back to work without pay. That means more taxpayers looking for answers on how to navigate the new law could end up pushing off filing their taxes until later.
And according to the agency’s taxpayer advocate, the IRS is doing a much poorer job of answering calls.
“We’re seeing that the IRS just hasn’t been able to handle the same volume of calls, hasn’t been able to help taxpayers in the same way,” said Andrew Wilford, a policy analyst at the National Taxpayers Union Foundation. “And that’s not their fault — that’s because they’re having to deal with the shutdown as best they can.”
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