Memo – Refunds Lower? Most Likely It Does NOT Mean Your Taxes Have Increased

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Many taxpayers are going to find that their refunds are lower than last year. If you’re one of those people, please don’t fall for the hysteria that the media has been pushing the past week or two.

If your refunds are lower it most likely does NOT mean your taxes have increased.

Let me explain what happened with regard to payroll tax withholdings in 2018.

Last year the payroll tax tables were changed to accommodate the tax reform’s new lower tax rates. If you follow my blog you would see memos that advised you take a look at your new withholdings to see if they were adequate compared to 2017.

Many times we found that the new withholdings in 2018 were relatively lower than they were in 2017.

What does this mean?

It means everything else being equal, of course your refund is lower, because your withholding is lower. If so, you may be in a situation, like many of my clients are finding, that you had more money in your paychecks all year. If that is the case, it should make sense that your 2018 refund might be lower than 2017.

Having more money in your weekly paychecks to me is better tax planning than having a large refund.

So before you believe that your taxes have increased because your refund is lower, you should take a little time to dig deeper into your tax numbers on your tax return to see what really happened.

Here are some tips to take a closer look at your tax numbers.

1) Was your total income tax (not your refund or balance due) shown on form 1040 for 2018 actually lower or higher than 2017?

    a) If lower, that is a good impact on tax reform for you.

2) Look at your withholdings on your W-2. Were they higher or lower than they were in 2017?

  b)If they are lower, than you did have more money in your paycheck and it makes sense your refund is lower.

3) Divide your total tax (not your refund or balance due) into your taxable income for 2017 and 2018

  a) What % do you get?

  b) Is the 2018 % lower than the 2017 %, that would mean your are paying relatively less tax in 2018.

So upon further inspection you may find that overall you have actually saved taxes compared to 2017.

If you have questions about this issue, I urge you to contact me so I can help you analyze the situation to see exactly how you have fared under Trump tax reform plan.

Remember, a lower refund does not necessarily mean you are paying more tax than last year.

Spread the word!