It is no pleasant surprise.
Millions in the middle class expected more relief from the 2017 Republican income tax restructuring but instead are finding smaller-than-usual refunds or that they owe the government money.
“Probably 50 percent of the returns that I’ve done were disappointed at the [federal] refund amount, and they were also disappointed with the amount of state taxes because the state did not adjust its taxes enough to accommodate federal tax changes,” said Don Jex, a tax accountant in Murray. “I spend more time explaining the changes after the return is prepared than I spend preparing the return."
Government officials say most taxpayers received tax cuts, but they were spread out during the year in bigger paychecks — and refunds are smaller because tax withholdings often were smaller. But those who came out on the short end are complaining loudly on social media with the hashtag #GOPTaxScam.
One man’s disappointment
Among disappointed taxpayers is Bradley Barnes of Salt Lake City. His income increased by $2,000 last year, from $23,000 to $25,000. His federal tax went up by $800, eating up 40 percent of his higher earnings.
In state income tax, he went from a refund of $350 last year to owing $200 this year.
“I felt like there was a list of things I didn’t like about the current [Trump] administration. But I kept telling myself selfishly that I would appreciate a lower tax burden,” he said. “Then to find out that isn’t the case, it just made the frustration greater.”
He earns money from several jobs, including ushering at a sports arena, tending bar and running a tour guide business. He said what especially hurt him was not being able to claim, as he did in the past, many of the expenses for his tour business.
“I was sold a bill of goods that my tax liability would be lower because of the doubled exemption [for those who do not itemize]," he said, “and then to find out on tax day that isn’t the case at all was very disappointing.”
Among those complaining about results of tax reform online is former U.S. Labor Secretary Robert Reich, who served under President Bill Clinton. He posted, “The Trump tax hikes will go down in history as one of the biggest heists in American history, transferring billions of dollars from the poor and middle class to the wealthy and corporations.”
IRS, Utah data
Data from the IRS and Utah State Tax Commission suggest such assertions may be extreme.
Earlier this month, the IRS said the average refund among the returns processed through Feb. 1 was down by 8.4 percent, or about $170. The number of people receiving a refund dropped by a quarter. About a fifth of all expected returns had been processed at that point, and the IRS says final data may change significantly.
The Tax Policy Center estimates federal income taxes actually will be lower for about 80 percent of filers, and 5 percent will see increases. The biggest cuts are for the top 1 percent of earners, who get an average 3.4 percent reduction of after-tax income. Middle-income earners are projected to get a cut of 1.6 percent of their after-tax income.
With that, the Treasury Department earlier this month sought to remind taxpayers that while many received smaller refunds, they got most of their tax cut in the form of bigger paychecks through the year — with smaller withholdings.
State Tax Commission spokesman Charlie Roberts said that through Feb. 10, the average state refund was $465 — up from $436 the previous year.
He said that last April, the tax commission updated withholding tables to account for changes in federal tax laws — and helped employers to withhold appropriate amounts if they were followed.
The nonpartisan Utah Foundation, however, said last March that the state was about to receive a windfall because the Legislature initially failed to update the state tax system, which is linked to the federal system, to keep taxes level after federal changes.
It said the inaction would help small families, higher-income households and corporations — but at the expense of large families with low and middle incomes.
The Legislature held a special session to try to address that.
Rep. Tim Quinn, R-Heber City, had tried to fix problems during the regular legislative session last year. “We ran out of time in the 2018 general session,” he said.
“Once we came back in special session, the budget had already been set. So we could only find $30 million that we could use,” he said. So it passed a $34 tax credit for every child dependent claimed.
The Utah Foundation said with that action, about 64 percent of households will not see a major change in their state income tax. But 31 percent will have significant decreases. About 5 percent saw substantial increases, mostly larger families and those with lower to middle incomes.
Quinn now is sponsoring HB282, which he said “would completely [protect] those families with children who make up to $70,000 of adjusted gross income,” so they would face no state income tax increases resulting from federal changes.
With news stories about upset taxpayers, he said, “it will have good support."
So what changes have been hurting some taxpayers?
Jex said one that hurts large families was changing dependency deductions.
“In my case, if all my kids were home, I have seven children. And with my wife and I, that would be nine dependents [in the past]. That gives us nine dependents at $4,000 apiece, or $36,000 that they’ve taken away now, and substituted it with a $24,000 standard deduction” for a family that size, he said.
Another common hit, Jex said, is doing away with deducting employee business expenses for many professions.
“Long-haul truckers and real estate people, for example, relied on the ability to deduct mileage and overnight stays,” and saw taxes rise because of that.
“I had a truck driver in here this morning,” Jex said, whose loss for meal and incidentals on the road “cost him $15,000 in write-offs.”
Roger Beynon, a certified public accountant in Murray, said an annoying part of that change for his clients is it still allows business cost deductions for government employees.
“Why doesn’t the government live the same life we live?” he asked.
Jex said another change that hurt several people is that home equity lines of credit now are deductible only if they are used to buy a home or make substantial improvements to one. “That hit some people hard.”
Beynon said another problem many face is a $10,000 limit on federal deductions for state and local taxes paid. Between state income tax withheld and property tax, many exceed that amount — especially those with higher incomes.
“I had one person who paid more than $100,000 in state withholding," he said, “and could deduct only $10,000.”
Beynon also said state tables appear to have underestimated how much should be withheld from paychecks for many. “So I have a lot of people who are receiving smaller state refunds.”
He said that isn’t necessarily bad. It allows people to have their money earlier through bigger paychecks if they choose. “But some people like to use refunds as savings, because they can’t force themselves to save any other way.”