[2018 tax return - How does it compare to previous years?]

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RobLyons
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[2018 tax return - How does it compare to previous years?]

Post by RobLyons » Mon Feb 11, 2019 4:30 pm

[Use this thread to discuss your 2018 tax return experience as compared to previous years. --admin LadyGeek]

So there seems to be much confusion around the tax returns this year. After watching news, scanning articles, and discussions with family/friends, it seems that many people are split on the cause of smaller tax returns this year.

I thought there was a large overhaul of the tax code, and most Americans actually paid less taxes in 2018 but because they did not address their tax withholding status, their refunds may be smaller.

Friends claim they didn't change anything and their effective tax rate increased this year. (I estimate they make somewhere around $120-$150k as a family of 4)


So this is the place I turn for solid information on money matters. So could someone please kindly explain exactly what happened?


Thanks in advance!! :sharebeer
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livesoft
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Re: Smaller tax refunds this year? Clear explanation please

Post by livesoft » Mon Feb 11, 2019 4:35 pm

First of all, more than 40% of American families do not pay any income taxes.

Second, a tax refund is not the amount of taxes that one pays. It is pretty clear that many people do not know the difference between the taxes they pay and the amount of their tax refund.

Third, quite a number of families in the high population states such as NY and CA will have their deductions for state and local taxes limited when they have enough deductions to itemize and be above the standard deduction. This alone does not mean higher taxes, since tax brackets went lower, but it might. Note that national news outlets are often based in NY and CA, so it is easy for them to find taxpayers who paid more in Federal income taxes.

... and many other explanations to follow ....

I live in Texas. I paid higher taxes because bunching of deductions in my personal situation under the old rules was very good to me, but is prevented with the new rules.
Last edited by livesoft on Mon Feb 11, 2019 4:40 pm, edited 1 time in total.
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Rupert
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Re: Smaller tax refunds this year? Clear explanation please

Post by Rupert » Mon Feb 11, 2019 4:39 pm

People confuse marginal tax rates with effective tax rates. You have to be clear which they're talking about when they complain. I think there are possibly two things going on. (1) As you note, many people failed to amend their W4s after the new tax law took effect. So they under-withheld (relative to the previous year, as opposed to relative to what they actually owed), and their refunds are lower. (2) Although the marginal tax rates were lowered for many (most?) people, many popular deductions were eliminated or capped, which increased effective tax rates and lowered refunds for some.
Last edited by Rupert on Mon Feb 11, 2019 4:40 pm, edited 1 time in total.

Seasonal
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Re: Smaller tax refunds this year? Clear explanation please

Post by Seasonal » Mon Feb 11, 2019 4:40 pm

livesoft wrote:
Mon Feb 11, 2019 4:35 pm
First of all, more than 40% of American families do not pay any income taxes.
Any income taxes or any federal income taxes?
livesoft wrote:
Mon Feb 11, 2019 4:35 pm
Second, a tax refund is not the amount of taxes that one pays. It is pretty clear that many people do not know the difference between the taxes they pay and the amount of their tax refund.
If withholding were the same and they're getting smaller refunds, then it would seem they're paying more taxes.

Quirkz
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Re: Smaller tax refunds this year? Clear explanation please

Post by Quirkz » Mon Feb 11, 2019 4:45 pm

Yeah, I've already had one conversation this morning, pointing out that you can both have a smaller refund and still pay less in taxes. They'll need to look at the line on their return that says "total tax" to know if it went up or down.

Also, I think most companies auto-adjusted withholding rates last year. It is 100% possible for the end-user to "not do anything" but their withholding still changed, and that could be affecting the refund.

It's also possible taxes *did* go up, depending how deductions and other things were affected, but we'd need the full equation, and not just the refund part to know for sure.

livesoft
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Re: Smaller tax refunds this year? Clear explanation please

Post by livesoft » Mon Feb 11, 2019 4:46 pm

@Seasonal, Federal income taxes.

Withholding cannot be the same in most circumstances since the federal withholding tables were changed and income changed.

It is pretty clear to me that many people who pay taxes have no clue. From years on bogleheads.org, I have learned that most people never even look at their tax return in the first place. Even if the amount of tax had to be printed in a 100 pt size font on the front of the first page, I doubt people would even notice.
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retiredjg
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Re: Smaller tax refunds this year? Clear explanation please

Post by retiredjg » Mon Feb 11, 2019 4:47 pm

I will pay less in tax but may owe a penalty because it appears I did not withhold enough and don't seem to be in a safe harbor. Bummer. :happy I don't know yet if the "effective rate" will be higher or lower or the same.

fcf18
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Re: Smaller tax refunds this year? Clear explanation please

Post by fcf18 » Mon Feb 11, 2019 4:47 pm

if they are in a high tax state and owns a house, probably because of the SALT limit of 10000.

retiredjg
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Re: Smaller tax refunds this year? Clear explanation please

Post by retiredjg » Mon Feb 11, 2019 4:49 pm

Rupert wrote:
Mon Feb 11, 2019 4:39 pm
As you note, many people failed to amend their W4s after the new tax law took effect. So they under-withheld (relative to the previous year, as opposed to relative to what they actually owed), and their refunds are lower.
Seems to me that would cause over-withholding, not under with-holding. I must be missing something. ETA - I was missing that there were new withholding tables.

I did see an article in the paper about withholding being all messed up this year and how the penalties may have to be relaxed as a result of that.
Last edited by retiredjg on Mon Feb 11, 2019 5:06 pm, edited 1 time in total.

Big Dog
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Re: Smaller tax refunds this year? Clear explanation please

Post by Big Dog » Mon Feb 11, 2019 4:50 pm

Also, I think most companies auto-adjusted withholding rates last year.
All employers were given new withholding tables last Feb, so in most cases, employee withholding declined (if they did not file a new W4). So, in most cases, employees ended up with less tax paid during the year. As a result, if they did nothing (did not change W4), their refunds would likely be lower, even though their total tax liability for the year is also lower.

Note, of course, those 'middle income' folks in high SALT states will see a cap in thier deductions......

fwiw: The Treasury claims that while average tax returns are down so far this year, its a really small sample....

alfaspider
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Re: Smaller tax refunds this year? Clear explanation please

Post by alfaspider » Mon Feb 11, 2019 4:52 pm

retiredjg wrote:
Mon Feb 11, 2019 4:47 pm
I will pay less in tax but may owe a penalty because it appears I did not withhold enough and don't seem to be in a safe harbor. Bummer. :happy I don't know yet if the "effective rate" will be higher or lower or the same.
Are you sure? The safe harbor was recently relaxed for this year.

Lindyhopper
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Re: Smaller tax refunds this year? Clear explanation please

Post by Lindyhopper » Mon Feb 11, 2019 4:52 pm

People typically have taxes withheld from each paycheck. Then when they submit their tax return they settle up. They either owe money (if they had too little withheld from their paycheck), or receive a refund (if they had too much withheld). How much you have withheld from each paycheck is based on the number withholds claimed on your W-4 and on a table that says, simplified from math to English, "for this many deductions withhold this much money."

In the past many people have had too much withheld, so they had a smaller paycheck but received a larger refund. Under this plan and tax table, most people (not in a SALT state, below) received a larger paycheck but are getting a smaller refund. Overall they paid less tax, and kept more money with their paycheck, but see less now at refund time. So they have been able to use more money all year.

There is a second case, for SALT states. There are many states, referred to as SALT (State And Local Taxes) where it was common for their state and local taxes to be greater than $10,000. For years people who live in low tax states have been subsidizing those how live in high tax states (an economic and factual statement, not a political one) because the SALT were fully deductible from your federal income. Now that deduction is capped at $10,000. In those SALT states borrowers had to go out of their way to decrease their number of withholdings (I took mine to 0 and it wasn't enough, at least by the time that I did it) or they would not have had enough withheld because they have a higher taxable income. So many of those people are going to owe when the settle up.

NoProbLlama
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Re: Smaller tax refunds this year? Clear explanation please

Post by NoProbLlama » Mon Feb 11, 2019 4:55 pm

Big Dog wrote:
Mon Feb 11, 2019 4:50 pm
Also, I think most companies auto-adjusted withholding rates last year.
Note, of course, those 'middle income' folks in high SALT states will see a cap in thier deductions......
For nearly all the people I know with a legitimate increase in effective tax rate this year, it was caused by the $10k cap on SALT. This has curtailed the deductions for many in this geographic area, and for some it was enough to drop them below the standard deduction.

pdavi21
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Re: Smaller tax refunds this year? Clear explanation please

Post by pdavi21 » Mon Feb 11, 2019 4:55 pm

The numbers are completely pointless to look at until most if not all returns have been processed.

xb7
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Re: Smaller tax refunds this year? Clear explanation please

Post by xb7 » Mon Feb 11, 2019 4:58 pm

In addition to what's already been said, I read in an article --- from the Washington Post FWIW --- that this is just based on early returns and that how this looks can change as more returns come in. I personally haven't even tried to do my taxes as I'm pretty sure that I don't have all the paperwork needed to do them yet. I wonder what percentage of all tax returns were reflected in this news report?

There are two different factors being conflated here --- changes in withholding, and a change to how property taxes and local income taxes get written off. These are two very different things, but the article I read didn't try to give any sense of proportionality between the two. If it's more the former, then yes it's just people complaining that the IRS didn't withhold more of their money only to give it back later as a refund. If it's more the latter, however, then that to me is in effect a countering tax increase. Insofar as I just look at how much tax I pay divided by how much gross income I make.

Bottom line is that IMO this is much ado about nothing, at this point anyway. If it turns out that large chunks of the country really got little or no tax cut, then yes --- that's big news. Or, I guess, if just a big enough chunk of the electorate comes away thinking that they got little or no tax cut, that too could have some impact !

retiredjg
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Re: Smaller tax refunds this year? Clear explanation please

Post by retiredjg » Mon Feb 11, 2019 5:02 pm

alfaspider wrote:
Mon Feb 11, 2019 4:52 pm
retiredjg wrote:
Mon Feb 11, 2019 4:47 pm
I will pay less in tax but may owe a penalty because it appears I did not withhold enough and don't seem to be in a safe harbor. Bummer. :happy I don't know yet if the "effective rate" will be higher or lower or the same.
Are you sure? The safe harbor was recently relaxed for this year.
Not sure yet. I did see that the safe harbor may be relaxed, but don't know the details yet.

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FiveK
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Re: Smaller tax refunds this year? Clear explanation please

Post by FiveK » Mon Feb 11, 2019 5:05 pm

RobLyons wrote:
Mon Feb 11, 2019 4:30 pm
So could someone please kindly explain exactly what happened?
Sure.
See https://www.irs.gov/pub/irs-pdf/p17.pdf vs. https://www.irs.gov/pub/irs-prior/p17--2017.pdf, and https://www.irs.gov/pub/irs-prior/p15--2018.pdf vs. https://www.irs.gov/pub/irs-prior/p15--2017.pdf.

Seriously, there were so many changes in both tax law and withholding tables that searching for "the" cause is doomed to failure. The only way to explain exactly what happened to a specific taxpayer is to investigate that person's situation.

Previous posters have hit on some of the more common causes, and also the fact that perception may not match reality.

livesoft
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Re: Smaller tax refunds this year? Clear explanation please

Post by livesoft » Mon Feb 11, 2019 5:06 pm

Thesaints wrote:
Mon Feb 11, 2019 5:02 pm
True, there will be some taxpayers who will end up paying more taxes overall (think highly paid professionals from NY, CA, MA), but that has nothing to do with the size of their refunds.
Uh, those highly paid professionals from NY, CA, MA will not end up paying more taxes.
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deltaneutral83
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Re: Smaller tax refunds this year? Clear explanation please

Post by deltaneutral83 » Mon Feb 11, 2019 5:08 pm

75% of the country has no idea what filing your taxes means and about 45% doesn't pay federal income taxes. It's simply reconciling what you owe vs what you've already paid in. The amount you get refunded or the amount you owe back is irrelevant. If you've kept an identical income or very similar year over year they have a specific line that tells you your federal (and state if applicable on the sate form) tax burden. Most CPA's will also have an "Effective tax rate" on the first page of your taxes if you let a CPA do them.

Thesaints
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Re: Smaller tax refunds this year? Clear explanation please

Post by Thesaints » Mon Feb 11, 2019 5:08 pm

livesoft wrote:
Mon Feb 11, 2019 5:06 pm
Thesaints wrote:
Mon Feb 11, 2019 5:02 pm
True, there will be some taxpayers who will end up paying more taxes overall (think highly paid professionals from NY, CA, MA), but that has nothing to do with the size of their refunds.
Uh, those highly paid professionals from NY, CA, MA will not end up paying more taxes.
Oh, yeah! SALT deduction has gone the way of the Dodo.

jhh9327
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Re: Smaller tax refunds this year? Clear explanation please

Post by jhh9327 » Mon Feb 11, 2019 5:08 pm

Only through two relevant tax returns to provide as data points this year.

1) High earner ($250k+) - High tax (SALT) state - 3 kids. Income went up by 10% yet effective tax rate dropped from 23% to 19% from prior year. AMT was a large number in previous years and that went away resulting in lower overall tax rate despite the income increase.

2) Lower-Middle income earner ($50k-$75k) - 3 kids, not a homeowner. Entire federal withholding will be returned (zero taxes due) plus an additional $2,700 in credits. Income last year was essentially the same and last year was zero taxes due and an $800 credit. 2018 effective tax rate of -5% compared to -1.5% prior year

So far 2 for 2 in people happy with their results this year.
Last edited by jhh9327 on Mon Feb 11, 2019 5:11 pm, edited 1 time in total.

Thesaints
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Re: Smaller tax refunds this year? Clear explanation please

Post by Thesaints » Mon Feb 11, 2019 5:10 pm

jhh9327 wrote:
Mon Feb 11, 2019 5:08 pm
Only through two relevant tax returns to provide as data points this year.

1) High earner ($250k+) - High tax (SALT) state - 3 kids. Income went up by 10% yet effective tax rate dropped from 23% to 19% from prior year. AMT was a large number in previous years and that went away this year resulting in lower overall tax rate despite the income increase.
Looks like you are talking about a high earner with a spouse who doesn’t make nearly as much.
Last edited by Thesaints on Mon Feb 11, 2019 5:10 pm, edited 1 time in total.

arsenalfan
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Re: Smaller tax refunds this year? Clear explanation please

Post by arsenalfan » Mon Feb 11, 2019 5:10 pm

I usually owe around $10k come April 15.
This year I owe $30k. Made the same amount.
I am paying the same tax overall - I just had $20k less withheld last year. All unintentional - the withholding tables were adjusted for the new tax law.
I knew something was up as the surplus kept piling up through the year - luckily I just sat on it.

I'm in the top tier, and figured the reduction in top tier rate would be offset by the 10k salt cap (I live in HCOL area). That assumption seems to be correct.

jhh9327
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Re: Smaller tax refunds this year? Clear explanation please

Post by jhh9327 » Mon Feb 11, 2019 5:13 pm

Thesaints wrote:
Mon Feb 11, 2019 5:10 pm
jhh9327 wrote:
Mon Feb 11, 2019 5:08 pm
Only through two relevant tax returns to provide as data points this year.

1) High earner ($250k+) - High tax (SALT) state - 3 kids. Income went up by 10% yet effective tax rate dropped from 23% to 19% from prior year. AMT was a large number in previous years and that went away this year resulting in lower overall tax rate despite the income increase.
Looks like you are talking about a high earner with a spouse who doesn’t make nearly as much.
Each example is a separate family.

Thesaints
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Re: Smaller tax refunds this year? Clear explanation please

Post by Thesaints » Mon Feb 11, 2019 5:14 pm

jhh9327 wrote:
Mon Feb 11, 2019 5:13 pm
Thesaints wrote:
Mon Feb 11, 2019 5:10 pm
jhh9327 wrote:
Mon Feb 11, 2019 5:08 pm
Only through two relevant tax returns to provide as data points this year.

1) High earner ($250k+) - High tax (SALT) state - 3 kids. Income went up by 10% yet effective tax rate dropped from 23% to 19% from prior year. AMT was a large number in previous years and that went away this year resulting in lower overall tax rate despite the income increase.
Looks like you are talking about a high earner with a spouse who doesn’t make nearly as much.
Each example is a separate family.
Yes, a family composed of a high earner, a spouse who is not one, and 3 kids.

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FiveK
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Re: Smaller tax refunds this year? Clear explanation please

Post by FiveK » Mon Feb 11, 2019 5:16 pm

Thesaints wrote:
Mon Feb 11, 2019 5:02 pm
dm200 wrote:
Mon Feb 11, 2019 4:52 pm
Stephanie Ruhle is great :)
Is that the ironic smiley ?
Indeed. All politics aside, the financial "information" in that segment was misleading at best (not mentioning the 2% floor on many eliminated deductions), and completely wrong elsewhere (e.g., saying "they took away the medical deduction").

gluskap
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Re: Smaller tax refunds this year? Clear explanation please

Post by gluskap » Mon Feb 11, 2019 5:17 pm

Just did my taxes and my taxes went up. For the first time ever we actually owe money instead of getting a return this year. Not happy with this. I guess we're one of the somewhat high income earners in a high tax state that got hosed as we lost our SALT deductions and exemptions and the increase in standard deductions didn't make up for it. It didn't help that the withholding tables changed on top of that which resulted in us owing money. [OT comments removed by admin LadyGeek]

jhh9327
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Re: Smaller tax refunds this year? Clear explanation please

Post by jhh9327 » Mon Feb 11, 2019 5:20 pm

Thesaints wrote:
Mon Feb 11, 2019 5:14 pm
Yes, a family composed of a high earner, a spouse who is not one, and 3 kids.
Not understanding your point. I provided two examples. One of a high-income family in a SALT state and another of a family who earns much less. Both have benefited from the tax changes. I know not everyone will.

onourway
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Re: Smaller tax refunds this year? Clear explanation please

Post by onourway » Mon Feb 11, 2019 5:23 pm

livesoft wrote:
Mon Feb 11, 2019 5:06 pm
Thesaints wrote:
Mon Feb 11, 2019 5:02 pm
True, there will be some taxpayers who will end up paying more taxes overall (think highly paid professionals from NY, CA, MA), but that has nothing to do with the size of their refunds.
Uh, those highly paid professionals from NY, CA, MA will not end up paying more taxes.
Please explain.

Thesaints
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Re: Smaller tax refunds this year? Clear explanation please

Post by Thesaints » Mon Feb 11, 2019 5:25 pm

jhh9327 wrote:
Mon Feb 11, 2019 5:20 pm
Thesaints wrote:
Mon Feb 11, 2019 5:14 pm
Yes, a family composed of a high earner, a spouse who is not one, and 3 kids.
Not understanding your point. I provided two examples. One of a high-income family in a SALT state and another of a family who earns much less. Both have benefited from the tax changes. I know not everyone will.
If it had been a family composed of TWO well paid professionals, their taxes would have gone up.
I don’t think it can be denied that those with a high earned income, from SALT states, by and large end up paying more.
It also cannot be denied that new brackets reduce the marriage penalty, which is why the family in your example pays a little less.

EddyB
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Re: Smaller tax refunds this year? Clear explanation please

Post by EddyB » Mon Feb 11, 2019 5:28 pm

Lindyhopper wrote:
Mon Feb 11, 2019 4:52 pm
For years people who live in low tax states have been subsidizing those how live in high tax states (an economic and factual statement, not a political one) because the SALT were fully deductible from your federal income.
To the extent that's supposed to be a factual statement, rather than a political one, it seems largely false, as several of the notoriously high-tax states (e.g., New York, New Jersey, California and Connecticut) are net subsidizers. See https://www.moneytips.com/is-your-state ... -taker/356

Maybe you meant that the prior treatment had the effect of reducing the degree to which the residents of many high-tax states collectively subsidized the residents of many low-tax states.

NotWhoYouThink
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Re: Smaller tax refunds this year? Clear explanation please

Post by NotWhoYouThink » Mon Feb 11, 2019 5:40 pm

Turbo tax exacerbates this confusion, and probably the other tax software programs do the same. As I enter data, the running total at the top of the page in big numbers and green or red font is the amount I will pay, or the amount I will get back. You have to go into forms and look at the 1040 to see what my total tax bill is, which is what matters. And then they pretend that I'm getting money back because of the deductions they found for me, not because of the laws Congress passed.

You know what could help people understand? Good reporting by the mainstream media, plus Facebook, Twitter, etc. Don't see that coming any time soon.

livesoft
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Re: Smaller tax refunds this year? Clear explanation please

Post by livesoft » Mon Feb 11, 2019 5:41 pm

onourway wrote:
Mon Feb 11, 2019 5:23 pm
livesoft wrote:
Mon Feb 11, 2019 5:06 pm
Thesaints wrote:
Mon Feb 11, 2019 5:02 pm
True, there will be some taxpayers who will end up paying more taxes overall (think highly paid professionals from NY, CA, MA), but that has nothing to do with the size of their refunds.
Uh, those highly paid professionals from NY, CA, MA will not end up paying more taxes.
Please explain.
AMT changed and marginal income tax rates changed. Here is a good article to wade through: https://www.marketwatch.com/story/meet- ... 2018-02-26
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cherijoh
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Re: Smaller tax refunds this year? Clear explanation please

Post by cherijoh » Mon Feb 11, 2019 5:45 pm

Seasonal wrote:
Mon Feb 11, 2019 4:40 pm
livesoft wrote:
Mon Feb 11, 2019 4:35 pm
First of all, more than 40% of American families do not pay any income taxes.
Any income taxes or any federal income taxes?
livesoft wrote:
Mon Feb 11, 2019 4:35 pm
Second, a tax refund is not the amount of taxes that one pays. It is pretty clear that many people do not know the difference between the taxes they pay and the amount of their tax refund.
If withholding were the same and they're getting smaller refunds, then it would seem they're paying more taxes.
The withholding would not be the same if they stuck with the same W-4 numbers as in previous years - that is just let their payroll department handle it. Employees who stuck with the status quo saw more salary each paycheck even if they didn't realize it. Of course increased health insurance premiums could have sucked up the excess and more.

breakfastmuffin
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Re: Smaller tax refunds this year? Clear explanation please

Post by breakfastmuffin » Mon Feb 11, 2019 6:00 pm

livesoft wrote:
Mon Feb 11, 2019 5:41 pm
onourway wrote:
Mon Feb 11, 2019 5:23 pm
livesoft wrote:
Mon Feb 11, 2019 5:06 pm
Thesaints wrote:
Mon Feb 11, 2019 5:02 pm
True, there will be some taxpayers who will end up paying more taxes overall (think highly paid professionals from NY, CA, MA), but that has nothing to do with the size of their refunds.
Uh, those highly paid professionals from NY, CA, MA will not end up paying more taxes.
Please explain.
AMT changed and marginal income tax rates changed. Here is a good article to wade through: https://www.marketwatch.com/story/meet- ... 2018-02-26
Just to add a personal anecdote -- I'm one of those people in NY who is paying more overall in taxes due to the loss of the SALT deduction, despite changes in marginal tax rates. Most income is W2 and not from sale of stock or options exercise.

JGoneRiding
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Re: Smaller tax refunds this year? Clear explanation please

Post by JGoneRiding » Mon Feb 11, 2019 6:02 pm

Seasonal wrote:
Mon Feb 11, 2019 4:40 pm
livesoft wrote:
Mon Feb 11, 2019 4:35 pm
First of all, more than 40% of American families do not pay any income taxes.
Any income taxes or any federal income taxes?
livesoft wrote:
Mon Feb 11, 2019 4:35 pm
Second, a tax refund is not the amount of taxes that one pays. It is pretty clear that many people do not know the difference between the taxes they pay and the amount of their tax refund.
If withholding were the same and they're getting smaller refunds, then it would seem they're paying more taxes.
No they just didn't notice the increase to their take home pay through out the year

livesoft
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Re: Smaller tax refunds this year? Clear explanation please

Post by livesoft » Mon Feb 11, 2019 6:06 pm

breakfastmuffin wrote:
Mon Feb 11, 2019 6:00 pm
Just to add a personal anecdote -- I'm one of those people in NY who is paying more overall in taxes due to the loss of the SALT deduction, despite changes in marginal tax rates. Most income is W2 and not from sale of stock or options exercise.
Yes, but are you a highly paid professional? I expect that many taxpayers in NY, CA, and MA had their taxes go up, but not the top-end taxpayers. Yes, I might be wrong on that which would make me happy
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Topic Author
RobLyons
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Re: Smaller tax refunds this year? Clear explanation please

Post by RobLyons » Mon Feb 11, 2019 6:08 pm

NotWhoYouThink wrote:
Mon Feb 11, 2019 5:40 pm
Turbo tax exacerbates this confusion, and probably the other tax software programs do the same. As I enter data, the running total at the top of the page in big numbers and green or red font is the amount I will pay, or the amount I will get back. You have to go into forms and look at the 1040 to see what my total tax bill is, which is what matters. And then they pretend that I'm getting money back because of the deductions they found for me, not because of the laws Congress passed.

You know what could help people understand? Good reporting by the mainstream media, plus Facebook, Twitter, etc. Don't see that coming any time soon.

That would make it too easy! :)
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RetiredAL
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Re: Smaller tax refunds this year? Clear explanation please

Post by RetiredAL » Mon Feb 11, 2019 6:26 pm

I have not yet done the taxes, so I can't yet talk the actual tax $ amount. Besides mine, I am responsible for getting my Dad's done.

I will talk about the the withholding change experience for my Dad, who is a retired Navy Officer. Last year, his Fed tax due at filing was about $1200. 2017 was a good dividend and cap gains year.

When the new withholding rate tables kicked in, his retirement pay withholding dropped by $375/mo. Based on the fact that he still was going to itemize due to charitable givings, the models said his total tax bill would be similar to 2017, yet his withholding had been reduced by $4000.

I would have been pissed to find out he owed an additional $4000 at filing just due to the table change. Thanks to people on this site pointing this out, this shortage was remedied in March.

Although we live in California, I do not expect SALT to be a major impact. His 2 houses pre-date CA's Proposition 13.

jebmke
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Re: Smaller tax refunds this year? Clear explanation please

Post by jebmke » Mon Feb 11, 2019 6:31 pm

NotWhoYouThink wrote:
Mon Feb 11, 2019 5:40 pm
You have to go into forms and look at the 1040 to see what my total tax bill is, which is what matters.
This has always been the case -- even when we filled out the forms by hand. Nothing means anything until the return is complete and checked. In fact, I have to complete my state return in entirety before I can complete my Federal return because of Form 1116.
When you discover that you are riding a dead horse, the best strategy is to dismount.

Chuck
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Re: Smaller tax refunds this year? Clear explanation please

Post by Chuck » Mon Feb 11, 2019 6:53 pm

gluskap wrote:
Mon Feb 11, 2019 5:17 pm
Just did my taxes and my taxes went up. For the first time ever we actually owe money instead of getting a return this year.
As many in this thread have already pointed out, the first thing is not related to the second thing. Withholding changes have tended to have less withheld from each paycheck, and a smaller refund, or owing money with the return as a result.

In order to find out how much tax you paid, you have to go to your 1040 and take the line that says "Total tax" and subtract the line that says "Refundable credits." Do that for last year and this year and see what the difference is.

uberdoc
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Re: Smaller tax refunds this year? Clear explanation please

Post by uberdoc » Mon Feb 11, 2019 6:54 pm

I went from positive refund to owing 17K. However as AMT didn’t apply and tax rates went down, SALT deduction didn’t matter for us this year so we saved around 20K in taxes this year. Definitely happy about it but not going to vote for T anyway.

Chuck
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Re: Smaller tax refunds this year? Clear explanation please

Post by Chuck » Mon Feb 11, 2019 6:54 pm

Tax return: The tax form that you fill out.

Tax refund: The money you get back if you have overpaid via withholding.

Chuck
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Re: Smaller tax refunds this year? Clear explanation please

Post by Chuck » Mon Feb 11, 2019 6:55 pm

Thesaints wrote:
Mon Feb 11, 2019 5:08 pm
Oh, yeah! SALT deduction has gone the way of the Dodo.
The dodo has been limited to $10,000?

KyleAAA
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Re: Smaller tax refunds this year? Clear explanation please

Post by KyleAAA » Mon Feb 11, 2019 7:10 pm

There is no one-size-fits-all explanation. Some people WILL pay higher taxes this year. Most people will pay less in taxes. The size of their refund is irrelevant. If one didn't change their W-4 this year, they are probably more likely to have received a bit more in every paycheck and a smaller refund. They likely paid less tax overall, though.

Turbotax has a succint page on the possibilities
https://ttlc.intuit.com/questions/19010 ... ast-year-s

JoeRetire
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Re: Smaller tax refunds this year? Clear explanation please

Post by JoeRetire » Mon Feb 11, 2019 7:16 pm

RobLyons wrote:
Mon Feb 11, 2019 4:30 pm
I thought there was a large overhaul of the tax code, and most Americans actually paid less taxes in 2018 but because they did not address their tax withholding status, their refunds may be smaller.
All that is true.

Many Americans paid less taxes. The administration wanted to front-load the tax reduction benefits, so changed the witholding tables to reduce the taxes taken out of each paycheck. Thus many folks have paid less taxes over the year and will get a smaller than expected refund.
Friends claim they didn't change anything and their effective tax rate increased this year. (I estimate they make somewhere around $120-$150k as a family of 4)
That's quite possible too. Not everyone's taxes went down. As with all tax changes, there were winners and losers.

MarkNYC
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Re: Smaller tax refunds this year? Clear explanation please

Post by MarkNYC » Mon Feb 11, 2019 7:20 pm

RobLyons wrote:
Mon Feb 11, 2019 4:30 pm
So there seems to be much confusion around the tax returns this year. After watching news, scanning articles, and discussions with family/friends, it seems that many people are split on the cause of smaller tax returns this year.

Friends claim they didn't change anything and their effective tax rate increased this year. (I estimate they make somewhere around $120-$150k as a family of 4)

So this is the place I turn for solid information on money matters. So could someone please kindly explain exactly what happened?
As explained above by others, the change in withholding has a major effect on tax refunds. If total federal withholding was reduced by $2,000 for the year, and total federal tax went down by $1,500, all else being equal the tax refund will be $500 less than the prior year even though total federal tax went down.

Here is my general overview of the tax changes. Leaving aside the 199A deduction, there were 5 significant changes that in some combination affected all taxpayers. The first 3 benefit the taxpayer and the last 2 hurt the taxpayer: (1) reduction in tax rates, (2) increase in standard deduction, (3) effective elimination of AMT, (4) loss of exemption deductions, and (5) limit on SALT deduction.

For most taxpayers, the first 3 changes outweigh the last 2,resulting in a reduction in federal tax. For some, including a family of 4 making $120K - $150K, it's possible the last 2 changes outweigh the first 3, causing an increase in total federal tax.

Old_Dollar
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Re: Smaller tax refunds this year? Clear explanation please

Post by Old_Dollar » Mon Feb 11, 2019 7:24 pm

The lack of distinction between tax burden and tax refund is rather funny. If tax burdens go down then tax refunds will likely go down since withholdings will be less.
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shorty313
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Re: Smaller tax refunds this year? Clear explanation please

Post by shorty313 » Mon Feb 11, 2019 7:35 pm

Our AGI for 2017 and 2018 were nearly identical (within $50). We owe $500 less in taxes for 2018. Not a huge savings but I'll take it. We got hit with the SALT limit - had to go standard deduction instead of itemize for 2018.

Funny enough, I noticed the larger checks and new withholding tables around July of last year. I did all the calculations and filled out new forms with what the online calcs said for the remainder of the year....and ended up over whitholding and getting a $3k refund. :oops:

I redid the forms again in January, hope it's closer for 2019!

Thesaints
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Re: Smaller tax refunds this year? Clear explanation please

Post by Thesaints » Mon Feb 11, 2019 7:58 pm

Chuck wrote:
Mon Feb 11, 2019 6:55 pm
Thesaints wrote:
Mon Feb 11, 2019 5:08 pm
Oh, yeah! SALT deduction has gone the way of the Dodo.
The dodo has been limited to $10,000?
Which is about zero for someone who may have 20k in property taxes and another 20k in CA income taxes.

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