REFUNDS – THE HIGHS AND THE LOWS
At the start of our 2018 tax filing season, the big news was that refunds were lower than the previous year. That didn’t seem right to many people. Taxpayers were promised lower taxes. Was this all a big sham? Well, no. The real question at hand is why? Why were the refunds lower? Let me explain!
Unbeknownst to many people, the withholding rates for 2018 were lowered. Thus, if you were having withholding taken out of your paycheck, you likely had less taken out in 2018 than prior years. And, by default, less money was paid to the government. As we are now preparing 2018 tax returns, you will often find that your total taxes went down! Here is the kicker - since the total withholding from your paycheck also went down, it often results in a lower overall refund. Is this a bad thing? It may hurt now, if you were banking on getting that big refund this spring. However, the truth of the matter is that this is good news. Smaller refunds mean that you kept more money in your pockets last year and overall withholding was appropriate for your tax liability.
However, a new wave of numbers has rolled in and now reports are saying that refunds have begun to rebound. Why the numbers are changing, we cannot say for sure. It may be related in part to the government shutdown, that got things off to a slow start. Regardless, we are now seeing a small increase in the average refund over this time last year. We will have to wait and see how these numbers play out throughout the filing season!
The long and short of it is this - it’s not all about the change in refund amount year over year, although I understand that certainly feels like the most important thing this time of year. Just keep in mind, when you boil it all down, you are likely paying less overall this year in federal income taxes. That’s where the focus should be. If you have questions about your particular tax situation, please call us at 979-268-1350.
Bekah L. Harvick, CPA
Brewer, Eyeington, Patout & Co.