David Slade is a senior Post and Courier reporter. His work has been honored nationally by Society of Professional Journalists, American Society of Newspaper Editors, Scripps foundation and others. Reach him at 843-937-5552 or dslade@postandcourier.com

taxes

Many Americans won't figure out the impact of the 2017 Tax Cuts and Jobs Act until they see the bottom line on their 2018 federal income tax returns. Some will be unhappily surprised. File

With tax filing season well underway, the rumblings have been growing louder about people receiving smaller refunds, or owing money, following the rewriting of the federal tax code.

Experts have been expecting this, but it likely comes as a surprise to many taxpayers.

Several different things are going on that explain what's happening.

First, the December 2017 "Tax Cuts and Jobs Act" did reduce federal income taxes for most people but not all. About 5 percent of taxpayers will owe more, rather than less, because of all the changes.

As for the rest, about 80 percent will have a lower tax burden for 2018, and about 15 percent will owe about the same, the Associated Press reported.

However, even those who owe less income tax to Uncle Sam for 2018 could be getting a smaller refund than they are used to. They could even end up owing money.

That's because the federal government changed the guidelines for withholding in early 2018. That's the money that's withheld from paychecks for anticipated income taxes.

"Many taxpayers will be surprised that they owe more than usual this year," said Dave Du Val in a blog post of TaxAudit, an audit defense company. "In addition, many more people will likely owe extra money as a result of inadequate withholding because the new withholding tables were not accurate."

The changes in withholding made most paychecks a bit larger, but also made it more likely that people would not have enough money taken out to cover their 2018 income tax liability. Some Democrats have suggested this was intentional — an attempt to win support for the tax overhaul in advance of the 2018 elections by inflating paychecks.

The Government Accounting Office reported that the Treasury Department, which was involved with the changes, estimated that the percentage of taxpayers not withholding enough to cover their tax bills would rise to 21 percent form 18 percent — that's several million people who will owe money instead of getting a refund.

And many of those who do receive a refund will get a smaller one, because less money was taken from their paychecks during the year. In other words, people didn't overpay as much during the year, so they'll get smaller refunds.

"The average refund in the second week of the filing season ended Feb. 8 was $1,949, down 8.7 percent from $2,135 a year earlier, according to IRS data released Thursday," the AP reported.

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Last year for the entire 2017 tax season 135 million individual tax returns were filed, and 102 million resulted in refunds, which averaged $2,778, the General Accounting Office said.

Normally, there's a penalty if people don't pay at least 90 percent of their federal income tax liability, through withholding or quarterly payments. The IRS, signaling an awareness of the withholding problem, reduced the threshold that triggers a penalty to 85 percent.

"Although most 2018 tax filers are still expected to get refunds, some taxpayers will unexpectedly owe additional tax when they file their returns," the IRS said.

The debt-financed income tax overhaul, which a majority of Americans disapprove of according to Gallup polls, permanently reduced taxes on corporations and temporarily reduced taxes on individuals, with the majority of the savings going to companies and higher-income taxpayers.

Supporters of the tax law changes, such as the conservative nonprofit Tax Foundation, say the Tax Cuts and Jobs Act should not be judged by the change to any individual's refund or tax bill.

However, individuals will likely judge the changes in law by the impacts on their tax returns and their bank accounts, which are just now becoming clear.  

Reach David Slade at 843-937-5552. Follow him on Twitter @DSladeNews.