Your Tax Refund May Be Different This Tax Season—Here’s What You Should Know
According to a new study, 28% of people are unsure how the tax law is different for this tax season. Are you one of them?
In 2017, a new tax law kicked off the biggest tax overhaul in approximately 30 years. Understanding the ins and outs of filing a tax return, including when is tax season, is tricky for most people in a typical year. With the changes to the tax code, there’s a new set of numbers, rules, commonly missed tax deductions, and rates to remember and understand.
A recent study from personal finance site NerdWallet checked in with taxpayers on how much they know about the updated tax law, and, for the most part, it’s not much. 28 percent of people are unsure of what exactly changed, and 48 percent don’t understand how it affects their tax brackets. In December 2018, only 51 percent of U.S. taxpayers were aware a tax bill had been signed into law at all.
To help catch everyone up, Real Simple spoke with Andrea Coombes, a tax specialist at NerdWallet, about four key things people should know about before filing their taxes. (The IRS is accepting and processing tax returns as of January 28, 2019.)
If you work with a tax professional or have an atypical tax situation, always seek professional advice before changing how you file your taxes; as Coombes says, “Everyone’s tax situation is unique.”
Uncertainty surrounding the lengthy government shutdown at the beginning of 2019 led many to wonder if tax refunds would be delayed this year. The IRS has said it will start and end tax season on schedule, with no delay to people receiving their refunds, but Coombes says it’s best to file early, to avoid any potential issues. If you file electronically through a tax service or with a professional, there is unlikely to be a delay, she says. But better safe than sorry: “Try to prepare for the possibility of a delayed refund.”
When that tax refund does arrive, though, it may be slightly larger than expected.
“It’s hard to say now exactly what will happen because everyone’s tax situation is unique,” Coombes says, adding that several studies have suggested that people may see larger refunds this year.
According to NerdWallet’s study, only 17 percent of those planning to file 2018 returns expect a larger federal refund; 23 percent say they’re expecting a smaller refund. Studies suggest people with lower incomes are more likely to see larger refunds, but only time (and the IRS) will tell.
“That’s a really big change,” Coombes says. “It can help reduce your taxable income.”
The increase mainly affects people who have itemized in the past—while most people take the standard deduction, a good proportion itemize instead, though the increase in the standard deduction may change that. Taking the standard deduction is the easier choice, Coombes says, if it makes financial sense.
“When you’re trying to decide whether to take the standard deduction or to itemize, what you do is add up all of your deductible expenses,” Coombes says. “Those are things like mortgage interest, charitable contributions, property tax, all those kinds of things. You add them up, and if that dollar amounts is bigger than the standard deduction, then you itemize. If it’s smaller than the standard deduction, then you take the standard deduction.”
“Almost everyone’s tax rates went down,” Coombes says. For many people, this means the amount they pay in taxes for 2018 should be lower than previous years; employers should have began withholding less in taxes from each paycheck in 2018. According to NerdWallet’s study, though, only 31 percent of people who received a paycheck in 2018 noticed an increase in their pay, and 34 percent of people say the new tax law hasn’t made any change in their financial situation. (24 percent say it has improved their financial situation, and 22 percent say it has made their financial situations worse.)