The government’s tax reform that took effect last year is taking a toll on many Americans’ refunds this year. Some early filers are getting smaller refunds compared to previous years, or find out they actually owe the IRS.
For many Western New Yorkers, EG Tax Vice President Chris Fabian said it is a case of “tax shock.”
“They do leave here happy because they still have a refund, but not as happy as they are used to.”
Some folks might have forgotten how their take home pay got bigger last year, because their federal withholding taxes got smaller. Fabian points out, even though their refund is smaller–or they might actually owe the IRS for the first time in years–their overall tax bill for 2018 went down.
Fabian gave an example of how those bigger paychecks can add up, “They make $2,000 or $3,000 more, so they went, let’s say, from $100,000 to $103,000, but their withholdings dropped.”
But many Western New Yorkers’ overall federal income tax bills might be going up, because of the cap on the deductibility of state and local taxes, and Fabian said, with New York having a higher rate of union membership, federal tax reform eliminated many of their itemized deductions.
“They backed off your union dues, your job miles, your cell phone, your continuing education. All those other expenses are not there anymore on the federal return.”
While it may be too late for taxpayers to do much about their 2018 federal returns, Fabian said, if you want to avoid a big tax bill next year, have more taxes withheld by changing your IRS W-4 form, and make sure your company payroll follows through.
Ironically Fabian said, EG Tax has seen very few changes on their clients’ state tax returns.