Florida

Florida taxpayers could be in for smaller tax refunds. Here’s why.

Rachel Katz usually receives a tax refund of about $2,000 to $3,000. The Seminole Heights resident expected about the same this year, given that little changed in her financial life.

Instead, she’s getting about $700.

“I was really surprised that it was so low,” said Katz, 26, who works in social services for the state. “It’s disappointing.”

That feeling is going around this tax season. The jolt stems from changes to the tax code made near the end of 2017. The Tax Cuts and Jobs Act, often referred to as President Donald Trump’s tax cuts, lowered taxes for most Americans last year, according to many projections.

The Tax Policy Center, for instance, estimated that 80 percent of taxpayers would keep more of their money in 2018 thanks to the tax cuts. Only 5 percent would owe more. The rest would break even.

Middle-class workers would save an average of about $400 to $1,800, the center calculated.

So why, according to an Internal Revenue Service report released Friday, are the number of refunds down by almost a quarter and the dollar amounts by nearly 9 percent compared to the same period last year?

Changes in how much employers hold back from paychecks are one culprit. After the tax laws changed, the Internal Revenue Service came up with guidelines to help taxpayers hit the sweet spot between withholding too much and not enough. But word about the new rules was slow to spread.

Many workers didn’t realize that the government wasn’t withholding as much as in prior years. So they were getting more in each paycheck, but that cut into their refunds.

“We all should have gone back to check if our withholding amount accurately reflected our tax liability,” said Howard Gleckman, a senior fellow at the Tax Policy Center. “Few people did, and no wonder: Who really wants to be checking that.”

Gleckman warns against drawing conclusions from one week of data so early in the tax season, especially after a partial government shutdown. The tax overhaul was just that, an overhaul, he said. It was broad and deep, adding and eliminating long-established deductions, among other changes. It will take time to determine what changes have the most effect on individual tax returns, he said.

“People are reading way too much into what is just 10 percent of all the returns that will be filed,” he said. “This is like the home team losing on opening day and everyone concluding that it can’t win the World Series.”

Katz noticed that her employer wasn’t withholding as much from her paycheck. She’s getting an extra $40 or $50 a month, she said, though she’d rather forgo the bump for a bigger refund.

“The small extra amount each month didn’t make up the difference between my normal refund and what I’m getting this year,” she said.

In most years, about three-quarters of individual taxpayers over-withhold. In other words, they are due a refund.

In the 2017 tax year, it was 76 percent. In 2018, the number will fall to 73 percent, according to a U.S. Government Accountability Office projection released last year. That may not sound like much of a difference, but it’s the equivalent of more than 4.5 million fewer taxpayers getting a refund.

Others paint a rosier picture, at least for some taxpayers. Analysts with the financial services firm UBS forecast that most married filers with two children would get bigger refunds this year. Single filers, they found, would likely see smaller refunds.

The uncertainty “shows that we need to wait before getting too worked up about it,” Gleckman said.

The issue has already turned political. Many taxpayers have taken to social media to excoriate Trump and the Republican lawmakers who passed the tax cuts. They equate lower tax refunds to having paid more taxes, even if that’s rarely the case. There’s even a Twitter hashtag: #GOPTaxScam.

“We’re paying $5,000 more in taxes,” @Amudrsir wrote to Trump. “We voted for you. We advocated for you. I have lost life-long friends in support of you. I am truly disappointed.”

At least in part, the anxiety stems from our love affair with tax refunds. It’s the equivalent of giving the government an interest-free loan, but many taxpayers like it that way. It’s a form of forced savings. They’d rather get a lump sum once a year, than a little extra in each paycheck.

Many use it to pay down debt. Others spend it on cars, appliances and vacations. Those purchases often aren’t seen as essential. Taxpayers can often put them off for a year or longer, so it’s unclear what effect fewer and lower refunds will have on the economy.

Katz said she’ll stick to her plan to use her refund to bolster her savings, after a tough year that included unexpected car and pet bills. But $700 is a far cry from $3,000.

“It won’t feel as good,” she said.

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