Where’s My Refund?

July 22, 2019by Jon Dockery0

That’s a question I was asked many times over the past few months when I had to deliver some unusual tax results to several unsuspecting clients. However, my clients were not the only ones asking this simple question. During the 2018 filing season, there was much discussion about disappearing refunds and people owing money for the first time ever. Many stories contained complaints about the Trump tax cuts, but acknowledged people were paying less in taxes. At first, I was angered by the bias of these stories, but quickly remembered that many people have an emotional attachment to their refund, and they were looking for answers.

So that raises some interesting questions to explore:

  • How can you pay less in taxes yet see your refund disappear? -If you lived in Tennessee, where we are based, the simple answer is that your tax liability was likely less for 2018, but you most likely didn’t withhold enough federal income tax from your paycheck.

  • How could I not have withheld enough if my taxes went down? – The IRS changed the withholding tables starting in March to reflect the new tax law. The design was to give people the new tax cut in their monthly check instead of having to wait until year end to get a larger refund. Unfortunately, these tables didn’t work correctly for many taxpayers.

  • What happened to my refund? – The surprise came when people started filing their 2018 tax returns. The withholding tables resulted in many people receiving more than the Trump tax cuts in their monthly pay. This additional amount either reduced taxpayers’ refunds or caused them to have to pay some of the money back. There’s no doubt that people were not prepared to write a check when they were expecting a refund.

What do I do now? – 

The best next step is to work with your CPA to evaluate your 2019 situation and make the appropriate adjustments. If left alone, 2019 may have a worse result than 2018. Remember, the new withholding tables didn’t go into effect until March, so the 2019 results will be for a full 12 months.

When you and your tax professional figure out your tax situation, you should:

  • Work with your HR department to complete a new Form W-4
  • Withhold a new amount for the remainder of 2019. At this point, you have almost 6 months of paychecks left to get your withholdings where you need them.
  • Reset your withholdings for 2020. The adjustments you make in July, for the rest of 2019, have a catch-up aspect to them, so you’ll have to establish a new set for the full year of 2020.

Next Steps-

This would be a good time to evaluate with your CPA and/or financial planner the appropriate amount of refund to receive each year. There’s no reason to give good ole Uncle Sam an interest free loan when you could take that money and invest it! If you need guidance with this situation for 2019 or beyond, please let us know how we can assist you.

Jon Dockery

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