I wanted to share a couple of common patterns I am seeing in clients' returns this year, resulting from new legislation:

  • Reduced withholding means reduced refunds. Although the new tax laws meant lower rates for many, these might not be reflected in a higher refund. A large number of employers and payroll companies automatically adjusted withholding rates for their employees to match the new taxes, so it is likely that you received a slightly higher paycheck throughout 2018 instead of receiving a larger refund now. Refunds that the IRS issued for the first three weeks of filing were 15% lower on average than for 2017; though the average rose again in the fourth week, this still means lower refunds for many. The new withholding rates your employer set you up with might not be ideal, especially for families with multiple incomes, and people who are self-employed in addition to getting a W-2. If you have not already gone over these issues with me or Joan, we can meet to figure out a good rate for you request from your employer for 2019.

  • Itemizing for higher state refunds. In some cases, you will notice that I itemize your federal deductions, even if the new higher standard deduction would give you the same federal refund, or even a slightly bigger one. This is because it is often significantly more advantageous to itemize deductions on state tax returns. In some states, including Virginia, to itemize on the state return you must itemize on the federal, or you must claim the standard deduction for both. I will run calculations to determine which option nets you the highest refunds overall, and will choose that course unless you specify otherwise. Let me know if you have any questions on this issue.