With the tax season ending for most people Monday, financial experts say there’s an obvious gap between public perception and cold, hard facts when it comes to their returns.
The cause of the confusion? This is the first year that President Donald Trump’s Tax Cuts and Jobs Act, the largest overhaul of the United States tax code in decades, has been in effect, cutting the tax rates for most Americans. Even if people somehow understood the nation’s complex tax laws before, newness always breeds confusion.
The law, passed by Republicans without Democratic support in late 2017, is expected to be a main talking point as the president continues his 2020 re-election campaign, although polls have shown that many people see the tax cuts as benefiting the rich more than the middle class.
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During its first year, the new law has left some wondering why they had to write a check to cover their taxes this year or why their refund is smaller than anticipated.
“Taxes aren’t necessarily a sexy topic, and a lot of people want to ignore it until it becomes an issue, and this year it became an issue for a lot of people,” said Nathan Rigney, the Kansas City-based lead tax research analyst for tax prep company H&R Block. In general, he said, the federal government is now taking a subtly smaller amount from each paycheck, which makes for less of a payout when people got around to filing their tax returns.
Think about it like this: Instead of getting a cake on your birthday, you’ve been getting a collection of crumbs every two weeks. And Rigney understands that’s much less satisfying for many people.
“For tax people, this is predictable, but for most customers it isn’t intuitive,” Rigney said.
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Data through March 31 on Georgia taxpayers who filed through H&R Block, which claims to file one out of every seven federal tax returns, show they paid 26 percent less federal income tax this year compared to last year, Rigney said. As for why they didn’t feel it, he said the average refund only went up $8.
That same group of Georgia residents, Rigney said, paid an average of $1,248 less this year compared to last year.
“And that would look different for people in Atlanta and the wealthy suburbs,” he said. That’s because part of the new law benefits those who file standard as opposed to itemized, making all this dissonance is more obvious for those in high-income homes.
Nationally, Internal Revenue Service data shows the average refund through April 5 was down $31 — or 1.1 percent — from last year.
Cecily Welch, who has a tax prep firm in Sandy Springs, said this tax season met her expectation of “chaos and confusion.”
Welch said many of her clients — mostly from households that make between $100,000 and $500,000 a year — got angry over the deduction for state and local taxes, often shortened to SALT, being capped at $10,000, which matters in a place with high home values like Sandy Springs.
“These are people who are paying a lot in real estate taxes and state taxes and you’re not getting a benefit from those,” she said.
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Though the SALT tax cap became seen as a Republican slight toward those in blue states with high-income state taxes, Welch said one thing stayed the same regardless of political affiliation: "It's fascinating, every single client has said 'wait, I thought this was supposed to save me taxes.'"
And though this year has been deemed the most confusing in recent memory, next year could be worse, said H&R Block’s Rigney.
That’s because the rules only counted for 10 months this year, but will be in effect all 12 months come next tax season.
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