With tax changes coming into effect in 2018, everyone is itching to know is how this will affect tax refunds in 2019.
The tax changes saw almost every tax bracket lowered, putting more money in worker’s pockets and restricting Uncle Sam’s reach into most American’s paychecks. The early estimates suggest that the fallout of these changes will see tax refunds rocket in 2019.
Morgan Stanley estimates that refunds will increase by a staggering $62 billion, an increase of 26% of 2018 tax refund levels. The company estimates that most of these refunds will be paid out in February, leading to an increase in public spending on consumer goods.
The firm released a statement which read, “we expect this boost in tax refunds to result in a sharply higher savings rate and elevated sales of big-ticket items in February and March 2019”.
Families with Children Will Likely be Better Off
Many of the benefits of the December 2017 tax reforms will positively affect families with children. Child tax credit doubled, increasing from $1,000 to $2,000. It also increased the threshold at which these credits stop being paid out from $100,000 to $400,000.
Increased Standard Deductions
Individual taxpayers could also see their tax liability shrink. The 2017 law almost doubles the permissible standard deduction amount. In 2017, single taxpayers had a standard deduction amount of $6,350. In 2018 (the taxes you will file for 2019), the amount has jumped to $12,000, significantly reducing the tax burden on many individual taxpayers.
Married couples will also see their standard deductions in the increase. Those filing jointly will see a rough increase from $12,700 to $24,000.
Audit Levels Will Remain Low
There is more good news. On top of a likely increase in refunds, your chances of an IRS tax audit in 2019 are likely to remain low. 2018 tax audit levels were the lowest in 15 years and there is no sign of this changing on the horizon in 2019.
It May Takes Time
The downside is that the tax refunds could take some time. The IRS pays special attention to taxpayers claiming Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) due to the higher level of abuse on these schemes. Combined with the changes which come into effect, this could mean substantial delays to refunds.
If history has taught us anything, it is that even minor changes to tax guidelines can result in delays of several weeks. When thrown a new set of guidelines like the 2017 reforms, the IRS could take some time to process the changes.
What Do I Need to Do?
To ensure you are getting the most out of the new tax laws and are receiving the highest refund available, you should file a new W-4 form with your employer every time, your personal situation changes, you start a new job, or you think that your new economic circumstances will affect the amount you owe in taxes.
Because the 2017 tax law reforms affect the child tax credit, new dependent credit, and itemized deductions, if you believe any of these changes will affect you, you should file a new W-4 form with your employer.