‘You could have been getting all your tax cut—and then some—in your paychecks…’
(Joshua Paladino, Liberty Headlines) As Sunday’s IRS deadline leads some to open up their checkbooks, some may be cursing the Republican-led Tax Cuts and Jobs Act.
But the real culprit may be changes in withholding that belie a robust overall increase in employees’ take-home pay.
H&R Block, the largest tax preparation company in America, reported that taxes dropped 25 percent this year due to the TCJA.
Overall tax liability decreased 24.9 percent—on average, $1,150 per person—while tax refunds grew 1.4 percent.
Sen. Kamala Harris, D-Calif., deceived Americans when she claimed that tax reform only affected tax refunds, leading to a “middle-class tax hike to line the pockets of already wealthy corporations and the 1 percent.”
Sen. Chuck Grassley, R-Iowa, said tax breaks have helped the middle class.
“According to the Congressional Budget Office, 3 out of 4 dollars in tax cuts went directly to individual taxpayers and small business owners,” he said in a press release.
“Since President Trump signed the tax cuts into law, annualized economic growth has averaged 3 percent, compared to an average 1.9 percent growth during the Obama administration; monthly job gains average 215,000, versus 110,000 in the eight years prior to the Trump administration…”
Kathy Pickering, executive director of The Tax Institute and vice president of regulatory affairs at H&R Block, warned taxpayers against this notion.
“All these moving pieces have made it hard for people to understand the TCJA impact on their individual situation,” she said.
“Relying on their refund size to determine what tax reform means to them may not only be misleading, but can also put them further at risk of not getting the tax outcome they want when they file next year.”
H&R Block said average tax liability decreased 25 percent due to changes in withholdings.
Tax liability decreased about $1,200 per person, though refunds are up only $43.
“It’s reasonable to assume that a tax cut would mean your refund will increase, but that’s not necessarily the case,” Pickering said.
“The IRS updated how employers calculate how much tax to withhold from paychecks, which means you could have been getting all your tax cut—and then some—in your paychecks.”
Each American paid about $1,156 less in tax withholdings starting March 2018. That’s about $50 per week.
Taxpayers in high tax states such as California, New York and Illinois complained about losing state and local tax deductions, as tax refunds decreased 1.6 percent in California, 2 percent in New York and 0.5 percent in Illinois.
Yet overall tax savings in these states jumped 27.1 percent, 23.2 percent, and 24.5 percent, respectively.
“We’ve been encouraging people to update their withholding since February of last year, so that they can balance the benefits of tax reform the way they want,” Pickering said.
“For some, that’s getting it all in a larger tax refund, for others it’s getting it in their paychecks, spread out throughout the year.”