Tax refunds were on average 8 percent smaller this year than last in the first week of the filing season.
The IRS noted the changes as it began to process this year’s tax returns. According to Politico, refunds dipped to $1,865 from $2,035. The site points out that observers are eyeing this year’s refunds closely to gauge the impact of changes to the tax code championed by President Donald Trump and passed by Republicans in Congress.
“There are going to be a lot of unhappy people over the next month,” Edward Karl, vice president of taxation for the American Institute of CPAs, tells Politico. “Taxpayers want a large refund.”
Tax refunds are down, though, because many people didn’t sufficiently adjust their witholding schedules when tax rates were adjusted. So they brought home a little more money in their paychecks and will get less back when they file.
“Americans are obsessed with their refunds. What really matters is whether your taxes went up or down, not whether your refund went down,” Howard Gleckman, senior fellow at the Urban Brookings Tax Policy Center, tells NBC. “It’s really important that people don’t confuse their refund with the taxes they pay.”
Bloomberg has a good explanation of why tax refunds may be down this year:
The Internal Revenue Service offers ongoing guidance to help employees and employers decide how much money to withhold from paychecks so that most income taxes are paid automatically and gradually throughout the year. The shifting tax brackets — they now start at 10 percent and top out at 37 percent for income about $500,000 — plus changes to exemptions, deductions and credits meant that many taxpayers needed to adjust their withholding. But most taxpayers were confused how to do so, according to tax adviser H&R Block Inc. (The IRS reworked its calculations, but the updated tables didn’t translate precisely from the old law.) Home Depot Inc. found that only 1 percent of its employees had altered their withholding.