2019 Tax Returns Are Down -- What States Could Be Impacted Most?

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The data from the first week of 2019 tax filings are in, and it's not looking good.

The total number of refunds issued are down a whopping 24.3% compared to this time last year, a difference that translates to $3.8 billion. While the IRS did confirm tax filing would still begin on January 28 regardless of the government shutdown, it appears only 83% of early filings have been processed, compared to 98% at the same time last year. When contacted, the Internal Revenue Service (IRS) maintained "IRS systems are operating smoothly to start the filing season, and refunds are being issued."

Worth noting is that total number of returns received is also down 12.4%. It's possible despite numerous bulletins from the IRS, the public may have been confused amid the shutdown, as even visits to the IRS website were down 11%. It's also possible the 2018 tax overhaul, the most significant in 30 years, might be adding some time to individuals used to filing the same information every year.

Beyond the number of returns, the average return was 8.4% lower (a real amount of $1,865 versus $2,035). Most models predict this reduction to remain consistent throughout the season based on the 2018 reform, though it's still early to say so conclusively.

Regardless of the reason, if the trend continues, it could be a large blow to the U.S. economy. Tax returns for previous years have been close to $400 billion, which equates to roughly 2% of our GDP. A depression of 8% could be felt by the economy at large.

However, should this happen, not all states will be impacted equally. Individual tax refund rates vary greatly state by state -- as high as 27% and as low as 3% -- as does the overall amount of money issued back. To get a better understanding of how much states rely on tax refunds, we looked at the most recent state level data from the IRS, along with income figures from the U.S. Census Bureau, to understand how states fared when it came to filing their returns. We outlined some of our most interesting findings below.

Large states see the most returns

When it comes to total tax dollars returned, bigger states have historically done the best.

Leading the nation in total returns was California at $40 billion, followed by Texas ($32B), New York ($24B), Florida ($23B), and Illinois ($14B). These top five states alone accounted for 40% of all tax dollars refunded, though it seems logical given they also account for 37% of America's labor force.

State Tax Dollars Refunded Average Dollars per Refund Percent of Tax Money Refunded
California $40.1 billion $2,912 11%
Texas $32.6 billion $3,189 15%
New York $24 billion $3,077 10%
Florida $23.3 billion $2,924 13%
Illinois $14.6 billion $2,900 11%
Pennsylvania $13.5 billion $2,643 11%
Ohio $11.6 billion $2,518 9%
New Jersey $10.7 billion $3,036 9%
Georgia $10.3 billion $2,814 13%
Michigan $9.8 billion $2,556 13%
North Carolina $9.5 billion $2,619 13%
Virginia $8.7 billion $2,761 12%
Massachusetts $7.8 billion $2,864 8%
Washington $7.4 billion $2,661 10%
Indiana $6.8 billion $2,602 12%
Tennessee $6.8 billion $2,713 11%
Maryland $6.7 billion $2,863 10%
Arizona $6 billion $2,659 16%
Missouri $5.8 billion $2,592 10%
Wisconsin $5.5 billion $2,429 12%
Colorado $5.4 billion $2,645 10%
Minnesota $5.4 billion $2,515 6%
Louisiana $5 billion $3,087 13%
Alabama $4.6 billion $2,784 19%
South Carolina $4.4 billion $2,561 18%
Connecticut $4.4 billion $3,113 9%
Kentucky $4.2 billion $2,641 13%
Oklahoma $4 billion $3,074 18%
Oregon $3.5 billion $2,385 11%
Nevada $3.2 billion $2,817 17%
Mississippi $3 billion $2,904 27%
Iowa $3 billion $2,589 13%
Kansas $2.8 billion $2,646 13%
Utah $2.8 billion $2,663 14%
Arkansas $2.7 billion $2,735 10%
New Mexico $1.9 billion $2,637 22%
Nebraska $1.9 billion $2,599 10%
West Virginia $1.7 billion $2,631 26%
New Hampshire $1.5 billion $2,587 13%
Idaho $1.4 billion $2,438 14%
Hawaii $1.4 billion $2,554 17%
Maine $1.2 billion $2,321 16%
Rhode Island $1.2 billion $2,648 10%
Delaware $1 billion $2,796 8%
Montana $900 million $2,372 16%
South Dakota $900 million $2,620 14%
North Dakota $800 million $2,954 13%
District of Columbia $800 million $2,949 3%
Alaska $800 million $2,815 16%
Wyoming $600 million $2,945 17%
Vermont $600 million $2,353 15%

Data source: Internal Revenue Service Data Book 2017.

However, even when accounting for population, Texas led the nation in average dollar amount per tax return with $3,189. It was followed closely by Connecticut, Louisiana, New York, and Oklahoma -- all of whom saw an average of at least $3,000 per tax return. Vermont and Maine trailed the nation in average return per filing, with $1,786 and $1,702, respectively.

Interestingly, when expanding to account for total returns filed -- which includes corporate, excise and estate taxes -- Delaware shoots up the ranking from 18th in dollars per refund to first at $4,445 per return (possibly due to Delaware's well-known business friendly tax environment).

Low income states rely more on tax returns

While total refund amounts largely follow population trends, things get interesting when looking at the percent of tax revenue refunded. Not only is there tremendous variance in return rates, but the states with the highest returns often had the lowest income.

Leading the nation in tax refunds is Mississippi at 27%, followed by West Virginia at 26%, both of which trail the nation with the 50th and 51st lowest household income, respectively. In fact, out of the top 10 states for tax refund rate, six are in the bottom 10 nationally in terms of income. Arkansas was a notable outlier here, which despite being 49th nationally in household income, was 38th in tax return rate.

At the very bottom of the list was our nation's capital, which had both the highest median  household income and the lowest tax return rate of 3%. It was joined in the single-digit returns club by Connecticut, Ohio, and New Jersey at 9%, Delaware and Massachusetts at 8%, and Minnesota at 6%.

How to maximize your tax return

When it comes to getting the most out of your IRS return, the first step is to make sure you are aware of your filing options and what forms are relevant to you as an individual. Additionally it's worth checking how you may be impacted by the recent tax overhaul. To ensure your best chances of a timely return, the IRS encourages e-filing and direct deposit. The IRS states that 9 out 10 returns filed this way will result in returns in 21 days or less. 

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