Under the 2017 Tax Cuts and Jobs Act, lawmakers promised that Americans would get a tax break. Most of them did, with some big caveats: The benefits of the legislation weren’t conferred equally, and some upper-middle-class filers expecting refunds got a rude awakening instead.
New data from the Internal Revenue Service shows that families earning between $100,000 and $250,000 were less likely to receive a refund this year by five percentage points; those who did get a refund, on average, got smaller refunds than they had the previous year. (Filers in income brackets below $100,000 received refunds at about the same rate.)
For slightly wealthier Americans, it was another story: The number of filers with household income between $250,000 and $500,000 who got refunds rose by five percentage points, and those refunds were bigger, too.
Tax experts say this highlights some of the quirks — and shortcomings — of the new tax code and the manner in which it was rolled out.
“It’s not surprising because you had a tax bill that was passed in haste, signed at the end of December and effective January 1. Most people didn’t know what the heck was going on,” said Mark Mazur, director of the Urban-Brookings Tax Policy Center. “The refund results reflect some of that confusion,” he said.
Changes to the IRS withholding tables that kicked in early in 2018 went largely unnoticed by many taxpayers. Since much of the tax cut was spread out across workers’ paychecks over the course of 2018, many people never noticed it. An NBC News/Wall Street Journal Poll conducted around tax time found that only 17 percent of Americans thought they had gotten a tax break. In reality, it’s closer to 80 percent.
The standard deduction for married couples filing jointly roughly doubled to $24,000 for 2018, but the TCJA also eliminated personal exemptions and pared back or eliminated many itemized deductions.
“In the past, a lot of those folks were able to benefit by being able to deduct all their state income taxes on top of all their real estate taxes,” said Craig Richards, director of tax services at wealth management firm Fiduciary Trust Company International. “Those are the folks who probably aren’t benefiting any longer.” The IRS data shows that the number of returns with itemized deductions plummeted from nearly 40 million last year to fewer than 14 million this year.
The data could be skewed because some wealthier Americans haven’t filed their taxes yet. “Higher-income people did seem to have greater volatility to their tax burden and their refunds,” said Mark Steber, chief tax officer at Jackson Hewitt Tax Service.