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Tax Refund vs Tax Liability

Are taxes up?  Are taxes down?  Media says:  both.

Since the IRS published its first report of the current tax  season, I have seen a lot of "talk" about how tax refunds are lower than  average.  I have also seen multiple posts on how taxes are down.  How  can these things both be true?

The Washington Post published an article  based on the initial IRS report that claims based on the data, that  average total refund amounts are down, and that Americans are bound to  be upset because of it.

And in the next electronic breath, we have an article from Tax Policy Center claiming that the same initial IRS report data proves that average total tax bills are down.

What  is the average individual taxpayer to believe?  The truth is slightly  more complex:  both are correct.  The IRS information doesn't lie; data  is data.  Unsuprisingly given the small amount of data that was  available at the time of the report, the average refund was  lower than the previous year.  Americans who assumed their refunds would  be the same as previous years may have been disappointed.

What isn't part of that data, however, is that many of those Americans  probably saw a slight increase in their take-home pay during the tax  year.  So instead of receiving $1000 refund, they received $800.  Their  "missing" $200 took the form of an extra $17 per month in their  paychecks.  Since many Americans paid less in taxes through the year,  they also received less of it back at the end of the year.  This can be  confusing.  Focus on comparing your total 2018 tax bill to your total  2017 tax bill.  What really matters is overall tax liability. 


FACT:  having too much money withheld from your paycheck results in a  refund at tax time.  In the event of a refund, your total tax bill was  less than the taxes you pre-paid.  This means that you gave the  government an interest free loan, and they are simply returning your  money.

My goal with clients is to develop an overall tax strategy that pre-pays  the appropriate amount of tax so that they neither owe the IRS  additional money, nor does the IRS owe it to them.  It requires some  vigilance to accomplish this.  One way to do this is to perform an  occasional "paycheck checkup" using the IRS withholding calculator.   Check it out below!

IRS WITHHOLDING CALCULATOR