Tax preparers warn your refund may be smaller than usual this year. Here’s why:
Doing your taxes isn’t just about placing the correct numbers in the boxes of a form and then, as many hope, collecting a refund. There’s also how you feel about your taxes.
“It’s a very emotional transaction,” said Kathy Pickering, executive director of the Tax Institute, the research and analysis arm of tax-preparation giant H&R Block Inc.
And this year many Americans are expected to be less than happy due to last year’s sweeping federal tax overhaul, which has Block and the rest of the tax-preparation industry bracing for plenty of sour reactions now that tax filing season is about to start ahead of the April 15 deadline. They’re doing things such as extra customer education, employee training and even role-playing exercises to prepare for the financial mood swings ahead.
The bill represented the biggest change in the U.S. tax code since 1986.
The latest redo, among other things, lowered tax rates for many individual income levels and raised the standard deduction. But it also eliminated many deductions that people had itemized to lower their tax burden — such as union dues and the fees that tax preparers charge — and it placed caps on others, such as state and local income tax deductions.
The upshot: While some filers will owe less or get a larger-than-expected refund, many others will be in the opposite camp, especially if they did not adjust their W-4 form that determines how much of their weekly income is withheld for taxes.
In other words, people who did not change their withholding might have enjoyed more take-home pay during 2018, but now they won’t get the refund they might have expected. Uncle Sam in effect took less money throughout the year instead of waiting to return the cash with a refund.
That refund averaged about $2,800 for the majority of individual taxpayers last year, the Internal Revenue Service says, but that’s likely to change for 2018 returns.
Jackson Hewitt Tax Service Inc., a tax-preparation firm with nearly 6,000 U.S. offices and 20,000 preparers, said it took a recent survey that found 72 percent of respondents had not updated their paycheck withholding since the tax revamp took effect, “meaning that taxpayers or their employers’ payroll systems could be using incorrect numbers.”
That’s why the IRS and the tax-preparation industry have been trying for the last several months to persuade people to adjust their W-4s if necessary, using calculators they’ve provided that incorporate the tax changes.
The tax-preparation firms know that some customers tend to blame them, and not new tax laws, when the filers don’t get the refund they expect or end up with a larger tax-due balance than anticipated. That can send miffed clients away and cut into the preparers’ revenue.
“We have had to do a lot of work to prepare our tax preparers for that actual conversation,” in addition to the massive job of training preparers and rewriting tax-preparation software, Pickering said. “It has been all hands on deck ever since the law got passed.”
Block has nearly 10,000 U.S. offices handling returns during tax season, along with its brand of tax preparation software. Between the two, Block handled 23.3 million returns last year.
“For many people, the filing event is the largest financial transaction of the year, and they really look forward to getting a refund,” Pickering said. “It’s what they use to pay bills, catch up on late bills or pay off their holiday expenses, for example.
“If they’re used to getting a refund of, say, $3,000 and now they’re getting one of $2,000, that could have a pretty significant impact,” she said.
