As the government shutdown ended and the IRS went to work, there was a major scare. People were starting to complain that they were expecting less on their tax refunds. In many cases, where they got a refund before, they were now expected to pay. This was frustrating for so many people. Even supporters of President Trump called him out on Twitter.
That early reaction was actually an overreaction for several reasons. Yes, some people will see smaller tax refunds this year. For some reason, people were expecting that they would pay less in taxes, but get the same amount back. Of course, the math doesn’t add up. If you pay less, you’re going to get less back.
The numbers were scary for many at first, but something amazing has happened. Over the past month, the average tax refunds have gone up. The numbers are on par with last year’s refunds, currently sitting at a 1.3% increase. There are a lot of reasons for why this is happening, despite the new tax law.
Treasury Secretary Steven Mnuchin said in an interview with CNBC on Thursday that refunds were rising. “Tax refunds are up 17 percent week over week,” he said. That basically gets us to the same level as last year.”
Larger Tax Refunds?
While most Americans paid less in taxes this year, tax refunds are still near the same average. There are several reasons for that. While some popular deductions were removed, others were increased. The Child Tax Credits and Earned Income Tax Credits all saw a boost. This is what the Treasury Department says is allowing for the increase in tax refunds.
“Those two tax credits are one of the biggest determinants on whether an individual receives a refund,” said Nicole Kaeding, vice president at the Tax Foundation. “We need to be careful in not overinterpreting the data. It is still not clear whether at the end of the filing season refunds will be up or down compared to last year.”
This means they aren’t sure of the total impact of the new Tax Cuts and Jobs act. It was passed in 2018, but couldn’t be implemented until this tax season. While the numbers appear to be going back and forth, the full weight of the law is unknown. It’s also possible that some people are struggling to understand the changes to their taxes.
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“Everyone wants to know, ‘Did I save money or not with the new tax bill,’ and the best way to check is to look at liability versus income,” said Chris Benson, CPA and principal at L.K. Benson & Co.
At the end of the day, if tax refunds are smaller, that’s a good thing. That means, under this new law, people received the money back in their paychecks. It does not mean the government took your money. It just means you got to keep more of your hard-earned money during the rest of the year.
