The voices of Tax Policy Center's researchers and staff
You’ve printed out your returns. You are awaiting your refund…or the IRS cashed your balance due check. Now you finally can put that shoebox full of W2s, 1099s, and receipts in storage.
Unless you filed for an extension (sorry) the 2019 tax season finally is over. And it was eventful. It was the first under the 2017 Tax Cuts and Jobs Act (TCJA), which made many of us uncertain to say the least. It got off to a rocky start thanks to a month-long government shutdown that dragged through January. And then there was that refund drama.
For all that, are there any conclusions we can draw?
Let’s start with whether filing income tax returns was simpler this year. That, it turns out, depends.
Easier for some
For some of us, the big increase in the standard deduction made filing much easier. TPC estimates that the number of itemizers fell from about 46 million to only about 19 million. And for many, that meant lots less time-consuming drudgery tracking deductible expenses.
But the TCJA didn’t make filing simpler for everyone. The Treasury Dept. killed Forms 1040 A and 1040 EZ that had made filing extremely easy for those with very simple tax situations. In addition, I suspect many 1040 filers went through the exercise of calculating their itemized deductions only to learn that they’d be better off taking the standard deduction. Still others may have chosen to itemize on their federal returns (and thus pay more federal tax) just so they could continue to itemize on their state income tax returns.
The TCJA also included new tax benefits that required millions of filers to do some extra work in return for tax savings. For example, 14 million more households were able to claim the child tax credit for 2018 than for 2017. Others could benefit from the TCJA’s special 20 percent deduction for qualified income from pass-through businesses such as partnerships and sole proprietorships. But to get this new benefit, they (or their tax preparers) had to sort through complex new rules.
About those refunds
And one last word about the new Form 1040--you know, the one the Trump Administration claimed you could fit on a postcard. Anybody out there stick a stamp on the two-page form and its six new schedules and try to throw it in the mail without an envelope? I didn’t think so.
About those refunds. For all the noise generated by those first few weeks of IRS filing statistics, it turns out that the 2018 tax year refund story was…boring. Average refund amounts were roughly the same as in 2017 and the number of returns claiming refunds increased slightly.
Perhaps the most interesting fact from the filing season is that about 4 percent more filers self-prepared their returns while about 1 percent fewer went to paid preparers. That may help account for the 9 percent increase in visits to the IRS website. Like most everyone, tax filers seem more comfortable doing their business online.
What about our income tax liability? The TCJA increased the share of households that didn’t pay federal income tax at all by about 2 percentage points. TPC estimated that the average individual income tax cut for 2018 was about $1,300. And H&R Block reports that among its clients, the average tax cut was pretty close to TPC’s prediction: About $1,200.
TPC estimated that middle-income households (those making between about $50,000 and $85,000) got an income tax cut of about $800 on average, while those in the top 1 percent paid about $51,000 less, thanks to the TCJA.
Reality v. perception
Overall, about 64 percent of households paid less in individual income tax for 2018 than they would have under the pre-TCJA law, while about 6 percent paid more.
That’s the reality. Then, there is the perception.
In an April 1-9 Gallup poll, only 14 percent of respondents said their taxes went down, while 21 percent thought they went up. Like opinions on many topics these days, there was a big partisan split. But even among Republicans, 13 percent thought the TCJA raised their taxes while 22 percent said the new law reduced their tax liability.
This may be due to what is called “loss aversion,” the human brain’s focus on perceived harm. Thus, we remember that the TCJA repealed our personal exemptions and capped the state and local tax (SALT) deduction, but forget that the law increased the standard deduction, lowered income tax rates, and largely eliminated the Alternative Minimum Tax.
All that grumbling aside. Most of us made it through a challenging filing season relatively unscathed, and with at least a modest tax cut. It should all be easier next year. Unless Congress changes the law again.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
Mark Lennihan, File/AP Photo