Americans do not know taxes well, and it seems that many are still unsure about the amount of their tax refund.
Headlines During the 2019 tax filing season they focused their attention on the change in US tax refunds after the Tax and employment cuts law (TCJA), the largest revision of the tax code in 30 years.
The change was devastating for some since 27 percent He planned to use his returns to pay the debt, store it in savings and apply it to other expenses. Since the results of tax refunds affect so many US budgets, we closely analyze how TCJA changed things for ordinary Americans.
We surveyed a total of 2,000 Americans to see how things have changed for them between the 2018 and 2019 tax filing seasons and what their expectations are for the 2020 tax season. We found that many Americans experienced changes in their refund of 2019 taxes and still expect fluctuations this year.
- Last year: 14 percent He received a tax refund that was less than normal.
- This year: 10.6 percent Expect to receive a refund less than 2019.
Last year's tax refunds shook things up for some Americans
We found that 14 percent of Americans received a lower tax refund than they normally would, seven percent received a higher refund, and approximately nine percent owed money when they normally do not owe.
Looking at all the answers, almost 45 percent of respondents experienced some kind of change in the result of their tax refund.
It is likely that anyone who was surprised by their tax refund has not seen how the TCJA affected them. In some cases, taxpayers did not adjust their withholdings and inadvertently kept more on their paycheck each month.
This would have resulted in a smaller tax refund at the end of the year or in taxes owed if it were withheld too much. This is just an example of how the changes in TCJA impacted US taxpayers.
Howard Gleckman is a principal investigator at the Urban Brookings Fiscal Policy Center (TPC) and spoke with CNBC in early 2019 about the confusion of the tax refund.
He said Americans should see if their taxes went up or down instead of whether their tax refund fluctuated. Gleckman says this is a more accurate way to see how he was affected, since refunds are only granted if you pay too much in taxes throughout the year.
Overall, the average tax refund between 2018 and 2019 was reduced by two percent, according to the IRS presentation season statistics for 2019. Although the average is low, the effect on individual taxpayers varies greatly.
Why Americans were not prepared for the TCJA
Many Americans were not familiar with taxes and tax laws before the changes caused by the TCJA and were largely unprepared.
Betterment Consumer Outlook Report: Tax Season As of 2019 shed some light on the average tax knowledge of Americans. Almost a quarter of respondents did not know that April 15 was the annual tax filing deadline and half did not know how much tax was withheld from their paycheck.
A H&R block A study on the effect of TCJA in April 2019 found that 80 percent of Americans did not update their W-4 in 2018. A Gallup The survey conducted in April 2019 found that 43 percent of Americans were not sure if the new tax law affected what they paid in federal income taxes.
the Pew Research Center I also discovered in April 2019 that a third of Americans understood the impact of the TCJA "not very well" or "not well."
Since many Americans were not well versed in taxes and tax laws before the TCJA, it is not surprising that many were taken by surprise last year. Since many media outlets covered this story last tax season, it is expected that more Americans will be aware of the change and have analyzed how TCJA will affect them while it is still in place.
Many Americans still expect to receive a tax refund this year
Our survey revealed that about 11 percent of Americans expect to receive a lower refund than last year. We also found that 10 percent expect to receive a refund greater than 2019 and approximately four percent expect them to owe more than they did in 2019.
About 30 percent expect that the result of their tax refund will have some kind of change from last year.
Approximately half of Americans expect to receive some type of tax refund this year. Compared to last year, the number of Americans waiting for a lower tax refund was reduced by approximately 3 percent.
Tax refunds remain a key part of some US budgets
Despite the events of last year, many Americans still believe that tax refunds are an integral part of their financial plans.
The financial company I In December 2019 it was discovered that a third of Americans are "very dependent" on their tax refunds. 44 percent said that owing the IRS this year would derail their 2020 budget. On the other hand, 52 percent are currently waiting to file a return because they know they are going to owe money.
Early 2019 NPR report He said that many people only focus on the amount of their tax refunds. The report quotes Richard Thaler, winner of the 2017 Nobel Prize in Economic Sciences, saying that the slight increase in paychecks during 2019 went unnoticed.
He goes on to explain that people like tax refunds and use it as a de facto savings plan, since many have trouble saving throughout the year.
Keep an eye on your debt if it depends on your tax refund
Your tax refund may fluctuate this year, especially if you have not yet adjusted your W-4 and reviewed how the TCJA may have impacted you. The H&R Block TCJA study noted that a person who saw a fall in their reimbursement in 2019 could see a larger fall in 2020 if they have not updated their W-4.
This can derail budget plans if you were relying on your reimbursement to pay off the debt. Pay close attention when you present this year and prepare to readjust your plans so you don't get caught off guard. If possible, develop an alternative payment plan to make sure you are aware of the payments.
It is crucial to monitor your debt, since timely payments and the amount of debt you have are the two most important factors that affect your credit score. A lower credit score can impair your chances of getting a mortgage at an ideal rate, qualify for a refinance and even get an approved rental application. Learn more about how debt and other factors affect your credit score.
This study was conducted for Lexington Law using Google Consumer Surveys. The sample consisted of no less than 1,000 complete answers per question. The post-stratification weighting has been applied to ensure accurate and reliable representation of the total population. This survey was conducted in January 2020.