Millions Of Angry Americans Will End Up With A Smaller, Or No Refund This Year: Here's Why

When Congress passed the Tax Cuts and Jobs Act (TCJA), a/k/a Trump's tax code overhaul in early 2017, the big expectation for tax season 2018 - the first tax-filing season under the new tax law - was that virtually all Americans would end up receiving a bigger refund. And yet, as numerous analysts have noted, as many as tens of millions more taxpayers will end up with no refund, or a smaller one, compared with a year ago, before the lower rates fully took effect.

How is that possible be? The explanation rests with the many other changes that made it into the revised tax code, and as millions of American taxpayers sift through the revised tax code, some are venting their surprise and anger.

First, the facts: with about 10% of households having filing their returns through the weekend, the percentage of households getting tax refunds is similar to last year, but the average refund size is down 8%, to $1,865. The number of returns filed so far -16 million - is also down 12% from the similar point a year ago.

To be sure, the first batch of weekly data from the IRS offers a very preliminary, unrepresentative look at what’s happening to taxpayers using the new tax system, which increased the standard deduction, lowered rates, and curbed some deductions. Typically, early filers are those who expect significant refunds, while those who owe money file closer to the mid-April deadline.

Furthermore, as the WSJ notes, the picture will become clearer later this month, as tens of millions more returns are processed, and while the IRS had been partially shut down in the run-up to filing season, the US tax agency says it is running smoothly so far (although all that may change on Friday should the government be shut again should a border deal not be reached between Trump and the Democrats).

Meanwhile, in absolute terms, about two-thirds of US households are getting tax cuts for 2018 under the law, and just 6% are paying more, according to the Tax Policy Center. But the size of those tax cuts may not be reflected in refunds, which are just the end-of-year reconciliation of what a taxpayer owes and what was withheld or paid during the year. As Bank of America observes, many taxpayers received much of the benefit through reduced paycheck-withholding throughout 2018, leaving nothing for the actual refund.

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