The Tax Cuts and Jobs Act was signed into law in December 2017. One of the more notable things the law changed was the increase to the standard deduction, which made it unnecessary for most people to itemize their deductions. It also increased the child tax credit and lowered some tax rates.
Supporters of the law predicted that most middle-class taxpayers would receive a larger refund than they had in the past. Now, the IRS has released data on how the new law actually affected Americans’ taxes.
According to data the IRS released recently, about 80% of taxpayers received a tax cut under the new law. However, many people didn’t see that tax cut reflected in their refunds, because many people saw incremental increases in their paycheck withholdings over the course of the 2018 tax year. These were not as obvious as large refunds might have been.
Indeed, fewer people received refunds under the new law. The IRS says it sent an estimated 113.4 million refund checks for 2018, which was down from 116 million refund checks for 2017. That’s 2.7 million fewer refund checks, or a 2.3% decline.
Additionally, a large number of taxpayers failed to adjust their withholdings for 2018 and ended up owing taxes. The Treasury Department offered relief from penalties for those affected.
In a report the IRS released with its data, the agency said that it expects the volume of refunds to return to previous levels as more taxpayers make the appropriate adjustments to their withholdings.
So, while many Americans did see lower taxes in 2018, the difference was often hard to spot. You might have seen a small increase in your paycheck after adjusting your withholdings to reflect the new law, but you may also have lost certain benefits you might have received if you had been able to itemize. And, if you didn’t adjust your withholdings, you might even have owed taxes.
If you’re concerned about withholding the right amount from your paycheck or any other aspect of the Tax Cuts and Jobs Act, contact an experienced tax attorney for assistance.
