The first tax filing season under the new federal tax law is proving to be surprising, confusing — and occasionally frightening — for some Americans, especially those accustomed to getting money back from the government. (Feb. 21)
The new tax law is proving to be the biggest source of confusion for filers this spring, with refunds at the top of their lists of concerns, according to H&R Block.
The tax preparation company is fielding a surge of questions this year both from people using the company’s software and those meeting with an H&R Block tax pro. More taxpayers using the software this year are turning to the online chat with a tax pro or giving up altogether and having a professional review their returns.
One of the biggest reasons: Unexpected changes in their tax refunds, said Kathy Pickering, executive director of H&R Block’s Tax Institute.
“Even the most confident DIYers are looking for a tax expert to check their returns,” she said.
Tax refund confusion
“Why do I owe this year” and “why is my refund lower” are among the top questions the tax preparer is getting from filers this year, Pickering said.
Tax stats: States With the Largest Average Tax Refund
Overall, the average tax refund for H&R Block’s customers through March is $27 larger – or 1.1% higher – than at the same time last year, according to data given exclusively to USA TODAY. Its customers’ total tax liability has decreased by 25% or $1,199 on average from last year.
But many of H&R Block’s filers aren’t feeling the savings.
That’s largely because their tax savings appeared in their paychecks during the year after the majority – almost four in five taxpayers – didn’t adjust their withholdings to reflect the changes in the tax code.
“They definitely got the benefit,” Pickering said. “But they didn’t notice the change in their paycheck.”
Who’s affected most?
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In some cases, taxpayers may have withheld too much and ended up with a much smaller refund, or owing for the first time this year. Those most at risk were taxpayers who itemized for 2017 and 2018, and who had mortgage interest in 2017 and 2018.
While filers who itemized saw their overall tax liability decrease by $5,788 on average, their refunds fell by $1,134 this year, H&R Block found. Those with mortgage interest saw their refunds drop by $595 on average, even though their tax liability declined by $3,365, according to H&R Block data through March.
Pickering said some taxpayers were surprised they couldn’t write off interest on their home equity lines of credit, or HELOC.
You can only deduct HELOC interest if the funds were used to buy, build or improve the home that secures the loan. If the HELOC was used to pay down credit card debt or pay for college tuition, the interest is no longer deductible.
A small but noticeable number of taxpayers also have reached out to H&R Block after discovering their tax refunds were much bigger than normal, Pickering said. “They are asking: ‘Did I do something wrong?’” she said.
Many of them, it turns out, benefited from the higher child tax credit, which doubled from $1,000 per child to $2,000 per child and is available to a wider swath of filers.
The income threshold for the credit is $200,000 for single filers and $400,000 for joint filers before phasing out. Before the tax law changes, the income limits were much lower: $75,000 for singles; $110,000 if married filing jointly.
If you owe the government taxes, you may find that paying Uncle Sam with a credit card is actually advantageous.
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