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My Tax Return is Lower Than Normal, I Didn’t Get a Tax Cut!

| April 11, 2019

Tax Season. That glorious time of year where American’s are divided into two groups, and I am not referring to political parties. The first group, those who owe. These folks despise tax season, they dread the trip to the accountant. They know somewhere over the next few weeks they will need to break out their checkbook and write a check.

The second group are those who can not wait to get their W2s, fire up the turbo tax, and submit as quickly as possible. Why? Well simple, they are getting a refund. For many American’s this lump sum windfall means they get to buy something they ordinarily would not buy. Hey $200, $300, $500 or maybe $1,000 check in the mailbox means a lot to many.
This year however, this year those looking forward to the nice check, are finding out it is a lot lower than they normally receive. This reduced amount has led many to complain that, they did not actually get a tax cut.

This however is most likely wrong. Let’s start with some basics of taxes. As you earn money through out the year, your employer withholds taxes, and sends them to the IRS on your behalf. At the end of the year you receive a report of how much you have made and how much was withheld. This report is known as a W2. You then take your total income and apply any deductions you are eligible for from the total. For many, this is the standard deduction, or the lowest deduction available. Although some can take a higher deduction most people cannot. The resulting number is your taxable income.

You then tax use your taxable income to determine your total tax, or how much you owe in taxes. At this point your withholdings come into play. If your employer withheld more than your total tax, then you get a refund. If your employer did not withhold more than your total tax, then you owe more.

If your refund is lower than normal this year, it just means that your employer withheld less from your check. In other words, you have had that money in your hands all year long, instead of waiting for your refund. I have heard many people complain about this, that they would rather the big refund. To which I always pose the following question.

If you were at the grocery store and your bill came to $80, and you hand over a $100 bill, hold out your hand for your change and the cashier says, “We will mail it to you in January/”, are you going to be upset?

Of course, you are, that’s your money. It is your money, it is not the grocery store’s money and they should have no rights to it. The same thing applies to your refund. Your refund is the change on your tax bill. Really quite simple. By not over paying through out the year you have had more money to pay your bills, and possibly buy something you want or save for that long-term goal.

So did you get a tax cut? To know that you only have a few quick steps to know for sure. Go back to the total tax this year and compare it to total tax last year. Keep in mind, that if you made more, or less money this year, you want to divide total tax by total income, to get it in the form of a percentage. I suspect that if you are like most Americans, you will find that you did in fact get a tax break.