Tax Refunds Are Smaller, and People Are Ticked

The IRS is out with early numbers on tax refunds in 2019, and people hoping for a bump under the new tax changes are being unpleasantly surprised. In the first week of the filing season, the average refund was $1,865, down about 8% from last year's average of $2,035, reports Politico. That has left many wondering what happened to the "$4,000 raise" the White House promised families would receive under the tax overhaul. Short answer: People are confusing their refunds with their tax burden. Details:

• An example: The Washington Post highlights the example of a middle-class New Jersey couple whose income didn't change but who received $3,000 less this year. “It totally feels like a scam,” says John Prugh. “I did still get a small refund, but compared to what I was expecting from previous years, it was shock.”
• Feeling the same: NBC News notes that the hashtag #GOPTaxScam has surfaced, with people who have gotten decent refunds for years unhappy to discover that they're getting far less or are even required to pay.

• The issue: Financial experts explain that what these people are overlooking is that their overall tax burden went down; they likely got bigger paychecks during the year, even if they didn't notice. “There’s a difference between taxes and your refund,” a senior research associate at the Urban-Brookings Tax Policy Center at the Urban Institute tells the Post. “People generally got a piece of their tax cut last year gradually in the form of lower withholding on their paychecks.”
• Lost deductions: The tax law may have lowered tax rates and increased the standard deduction, but it also limited deductions for state and local taxes, per Yahoo Finance. In fact, the new tax code eliminates or modifies many long-used deductions, including those related to mortgage interest, student-loan interest, and moving expenses.
• It's early: Tax-filing season runs through April 15, and it's possible trends could change. In fact, people seem to be delaying filing, perhaps because of all the changes: The IRS received 16 million returns in the first week, which is down 12.4% from last year.
• They're doing it wrong: Those who have traditionally gotten fat refund checks from the IRS may think it's great, but it's more likely a sign that they need to examine their withholdings. "A large refund from the IRS may seem like an advantage, but it isn't the best or most effective use of your cash flow," a rep from Robert W. Baird & Co. tells CNBC. "You're basically giving the IRS an interest-free loan."

(More tax returns stories.)