Tax Reform Benefits Seen in Larger Paychecks, Not Refunds, Treasury Says

The average refund amount at the beginning of the 2019 tax filing season was smaller than this time period last year, a new IRS report shows. However, most taxpayers are seeing tax reform’s benefits in larger paychecks rather than refunds, a Treasury spokesperson told Wolters Kluwer on February 15.

Tax Refunds

The average refund for the first 12 days of the 2019 tax filing season was $1,949, according to data recently released by the IRS. This year’s average refund thus far is 8.7 percent smaller than that of last year’s filing season, the IRS data notes.

Many Democratic lawmakers on Capitol Hill are blaming the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97), enacted at the end of 2017, for the smaller refunds. However, GOP lawmakers and the Trump administration are refuting Democrat’s claims.

Tax Reform’s Impact

“The TCJA cut taxes across the board, particularly for middle-income families. Most people are seeing the benefits of the tax cut in larger paychecks throughout the year, instead of tax refunds that are the result of people overpaying the government,” a Treasury spokesperson told Wolters Kluwer. “Smaller refunds mean that people are withholding appropriately based on their tax liability, which is positive news for taxpayers.”

Additionally, it is anticipated that fewer refunds will be issued this filing season, according to a senior Treasury official. Moreover, the average refund amount will likely be “slightly lower,” than last year’s, the Treasury official told reporters on a recent press conference call. However, most taxpayers are seeing a smaller refund because they are paying less taxes, the official noted.

Likewise, Senate Finance Committee (SFC) Chairman Chuck Grassley, R-Iowa, recently made a similar argument against Democrats’ criticism of the TCJA as related to refunds. “The size of a refund tells you nothing beyond the degree to which a taxpayer has overpaid their taxes over the course of the year,” Grassley said from the Senate floor.

Democrats Blame TCJA

However, several Democrats have emphasized the importance of taxpayer’s refunds on individual and family financial planning. “Many Americans depend on their tax refund to pay bills and make ends meet – but this tax season, working families will see smaller than expected returns and surprise tax bills…,” Senate Minority Leader Charles E. Schumer, D-N.Y., said in a February 15 press release. Schumer went on to blame the Trump administration for exaggerating the beneficial impact of the TCJA on middle-income taxpayers.

Further, 40 Senate Democrats sent IRS Commissioner Charles Rettig and Treasury Secretary Steven Mnuchin a February 15 letter urging the IRS to waive penalties associated with TCJA-related underwithholding during the 2018 tax year. Likewise, many Republican lawmakers and tax practitioners are encouraging the IRS to further lower the 80-percent income threshold the IRS is using this filing season for the assessment of underpayment penalties.

For guidance regarding tax planning and preparation, contact our tax professionals at 315.424.1120 or info@gsacpas.com.

2019-03-13T14:25:31+00:00