We are now a few weeks into the filing seasons and a few trends are already observed:
- While the IRS seems to have caught up following the shutdown many states are still behind. Many state forms are not released (particularly for partnerships and S Corporations) and this is slowing down the filing of those returns. Our software provider continues to receive and release updates and patches but unless the states get it together some returns will be delayed.
- Most individual returns have resulted in lower total tax burdens than prior years. This was expected.
- In spite of the above, some taxpayers are seeing lower tax REFUNDS than in prior years. How can that be? Well, recall that the IRS changed the withholding tables in February 2018 to reflect the lower tax rates. That means workers received more take home pay on a week to week basis throughout the year and thus are credited with less paid in on their W2. So while the overall tax burden is lower, if withholding was reduced the refund likely occurred throughout the year rather than with the filing.
There actually have been several articles about this phenomenon:
Unfortunately, the press appears to be doing a pretty terrible job of explaining why this is happening. And a lot of taxpayers have taken to social media to express their anger. But in almost all cases that anger is misplaced and results from a fundamental misunderstanding of how taxes work and how withholding (which is just prepayment of taxes) work.
Hopefully that makes some sense. If you have any questions about your return and your refunds, please feel to ask us.