It's been nearly two years since the federal government made major changes to the tax laws. At the time, some feared that despite providing tax savings for millions of Americans, the size of tax refunds could shrink for a significant number of people. As late-filing taxpayers finally get around to filing their returns by the Oct. 15 deadline, just about everyone will now have a sense of exactly what impact tax changes had on their own financial situations.
Early on, it looked as though tax refunds might be smaller in 2019 than they'd been in past years. As it turned out, though, it looks as though the final tally will have only modest declines in most tax refund metrics. That doesn't change the fact that some people took significant tax hits under the new laws, but it does suggest that on the whole, the legislation did lower tax bills.
A $49 drop
The early data on refunds scared many taxpayers. In early February, average refund figures were coming in below the $2,000 mark, and that led some to fear that that trend would continue throughout the course of tax season. Despite reassurances from the Treasury Department that tax refund amounts would likely bounce back as more taxpayers actually filed their returns, the prevailing sentiment among taxpayers was a lot less confident.
Now, though, we have data on almost all of those who filed their returns either by the mid-April deadline or shortly thereafter. According to the latest available numbers, the Treasury Department issued 101.59 million tax refunds to taxpayers, down by roughly 1 million refunds from year-ago levels. The total amount of refunds paid out was $277.26 billion, working out to an average of $2,729 per taxpayer. Total refunds were down 2.7% from 2018's levels for those filing returns for the 2017 tax year, and the average refund amount was down $49 from the $2,778 year-earlier average.
Electronic filing has revolutionized the way Americans prepare their tax returns, and the statistics on refunds for those who filed electronically look pretty similar to the overall numbers. Nearly 87 million e-filers got refunds on their 2018 tax returns, up 2% from the number from the 2017 tax year. Average refunds were down by $72 to $2,868 per return, but the total amount paid came to $249.43 billion -- down just $1.3 billion from the same time a year ago.
What happened with refund numbers?
The way that the refund debate played out shows the danger of trying to draw conclusions from early, incomplete data. There are definite trends around which taxpayers file at what times during the tax season. Consider the following:
- If you're due a refund, you generally want to get it as soon as possible. That prompts people expecting big refunds to try to get their returns done early in tax season.
- However, there are tax laws that force many people expecting big refunds to wait longer than others before filing. In particular, if you file for tax breaks under the Earned Income Credit or the Additional Child Tax Credit, then you typically have to wait until mid- to late February before you'll be able to receive your refund. That was especially important in skewing the numbers from early February this year, as refund amounts saw a big bump once these credit-eligible returns started getting processed and refund checks got sent out.
- If you owe money, there's no reason to file your return until the last available moment. The statistics bear that out as well, because the proportion of new returns received and processed outpaced rising tax refund counts by an increasingly large margin late in tax season.
Keep your eyes on the prize
Perhaps the most important lesson from this is that changes in how much tax you pay won't necessarily affect your refund all that much. Withholding from your paycheck automatically adjusts to take new tax rates into account. So, people who saved money under the new tax laws likely saw it not in bigger refunds but rather through larger paychecks throughout the year.
Even so, people like to get big refunds. A slight drop in typical refund amounts might sound disappointing, but except for those who got hit hard by changes to rules like the state and local tax deduction, many taxpayers ended up paying less in tax than they had the year before.