Contributed

Reduced tax refunds surprising some filers

“It’s the individual psychology of it,” Local CPA says. “I have clients, if I don’t give them a big refund, they think I’m a bad CPA.”

For the first time, taxpayers this year are filing under the Tax Cuts and Jobs Act — and initial data shows the number of refunds and the average amount is down from last year.

After the tax law’s passage late in 2017, the government altered tax withholding tables, and people saw a bit more take-home this year, said Bill Duncan, a Dayton certified public accountant.

The downside: The lower withholding affects potential refunds come April.

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Taxpayers may not have noticed the higher take-home pay. Any small amount of increased pay, spread out across a year, can easily get swallowed up in increased health insurance premiums or other payroll deductions.

According to the most recent IRS data, the number of total refunds are down compared to last year and the average refund this year is $1,865, down 8.4 percent from 2018. (As of the week ending Feb. 1, 2019.)

But Duncan says big refunds really aren’t something to celebrate.

“It’s the individual psychology of it,” he said. “I have clients, if I don’t give them a big refund, they think I’m a bad CPA.”

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Refunds represent payment for taxes overpaid, which can be seen as an interest free-loan to the federal government, accountants say.

“Some people don’t want to give an interest-free loan to the government,” Duncan said. “Others want just pay in the 90s (percentage of what they owe), and owe (the IRS) come April. It’s an individual case-by-case.”

If you haven’t paid 90 percent of your taxes owed by April 15, the IRS can typically charge an underpayment penalty, he said. Ninety percent was the safe harbor — but this year, the IRS has lowered that to 85 percent, he said.

“You want to be close,” Duncan said. “You don’t want to get a lot back, and you don’t want to owe a lot.”

On Twitter, the U.S. Treasury Department pushed back this week against reports of drastically lowered refunds.

“Refunds are consistent with 2017 levels and down slightly from 2018 based on a small initial sample from only a few days of data,” the department tweeted.

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If you want to raise your withholding, go to your employer’s human resource department and fill out a W-4 form, he said.

“It really was a tax cut,” Duncan said. “So far, I haven’t had a single (client) who didn’t go into a lower bracket and overall isn’t paying less tax.”

The 2017 tax legislation modified tax brackets, increased the standard deduction to $12,000 for single filers, $18,000 for heads of household and $24,000 for joint filers in 2018 — compared to $6,500, $9,550, and $13,000 (respectively) under the previous law.

John Venturella, a shareholder in business advisory firm Clark Schaefer Hackett, said his clients are seeing lower refunds.

“They’re being shocked,” he said.

He agreed, though, that high refunds aren’t necessarily a boon. “Again, that’s an interest-free loan to the government. Every client is different.”

Beyond refunds, many tax preparers and advisors are still trying to get clarification on business deductions, interest deductions and other matters, Venturella said.

“In some respects, they fill up one hole where tax practitioners had questions, they open another one,” he said of the IRS.

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