Fewer refunds expected

[Lee B]

WASHINGTON (AP) — Congressional auditors say about 30 million people — 21 percent of U.S. taxpayers — will have to come up with more money to pay their taxes next year because their employers withheld too little from their paychecks under government tables keyed to the new tax law.

New tax withholding tables for employers were put together by the government early this year. About 30 million workers received pay that was “under-withheld” — making their paychecks bigger this year but bringing a larger bill at tax time next spring, according to the Government Accountability Office’s report.

About 27 million taxpayers would have been affected even if the new law hadn’t been enacted. The changes, however, added 3 million to that number.

[Catherine]

Gee, I've been saying this since the new tables came out.  It was obvious that the new amounts were too low.  The cynical side of my brain says it's deliberate, so that next April people will be angry about a tax cut.  Because who - outside of my clients, who are drilled and drilled and drilled on "how much they get to keep" on Line 60-whatever - notices the total tax?  They just want to know the refund amount.  "Whaddya mean I owe!  I *always* get refunds!" will be the cry across the land next year, except for people who asked us (as in tax pros, not my company) what to do and then followed our instructions on withholdings.

[Lee B]

Actually, it was deliberate, remember all the talk about how much bigger everyone's pay check would be .

It was an attempt to pump up the enthusiasm for the TCJA and to juice up the economy.

[Jim Oh Bkkr]

16 hours ago, Catherine said:

Because who - outside of my clients,

Mine!

[Abby Normal]

17 hours ago, cbslee said:

About 27 million taxpayers would have been affected even if the new law hadn’t been enacted

I don't understand this.

[Abby Normal]

17 hours ago, cbslee said:

Actually, it was deliberate, remember all the talk about how much bigger everyone's pay check would be .

It was an attempt to pump up the enthusiasm for the TCJA and to juice up the economy.

And the fall elections which will conveniently come before the piper has to be paid.

[Medlin Software, Dennis]

I think the release is nothing more than a WAG or a political statement.  Personally, I suspect those that actively manage their finances (either personally, or via a professional) can be left out of any such speculation, since they choose what they pay in advance.  Those who simply accept what their W4 gets them, a fair number, maybe even the majority, use "people" to mean allowances, and instead of getting a large refund for their interest free gift to the uncle, will get a smaller refund, or maybe owe a small amount.  Those that annually have a balance due, and have not rectified the issue, will always be in that boat via choice, not via advance tax calculation shenanigans.

[Jack from Ohio]

2 hours ago, Medlin Software said:

I think the release is nothing more than a WAG or a political statement.  Personally, I suspect those that actively manage their finances (either personally, or via a professional) can be left out of any such speculation, since they choose what they pay in advance.  Those who simply accept what their W4 gets them, a fair number, maybe even the majority, use "people" to mean allowances, and instead of getting a large refund for their interest free gift to the uncle, will get a smaller refund, or maybe owe a small amount.  Those that annually have a balance due, and have not rectified the issue, will always be in that boat via choice, not via advance tax calculation shenanigans.

The "Interest Free Loan" to Uncle Sam, is not truly relevant any more.  When a 5 year CD of $5K or more only pays 1.5%, how much would be saved, by most people?  Interestingly, for refunds past the normal filing date, the IRS is paying 3%.  If a person files for refunds every 3 years, they would make better short term interest than they could get in the open market.

Most of my clients, can't save a nickel, so IRS is a forced savings plan.

 

[Abby Normal]

6 minutes ago, Jack from Ohio said:

5 year CD of $5K or more only pays 1.5%,

3%

[JohnH]

No matter the reason for the outcome, most unhappy clients are going to blame the preparer.

[Jack from Ohio]

10 minutes ago, JohnH said:

No matter the reason for the outcome, most unhappy clients are going to blame the preparer.

Agree.

[Patrick Michael]

I'm sure many of us will be getting calls from clients asking for projections to see if they're having enough withheld after they see this (already saw the article posted on social media).  Just wondering on how you are planning on handling these requests.  Will you be charging for the projection and if so, how much?

 

 

[JohnH]

Good question.  I usually don't charge if it's fairly simple, but might do so if lots of requests start coming in.  Drake produces a projection that shows what the difference would have been under the new tax law.  But of course that's lonely relevant if the elements of income & deductions are roughly the same. Does ATX produce a similar analysis?

[Catherine]

5 hours ago, Abby Normal said:

3%

jack wants to bank where you do!

[Edsel]

6 hours ago, Jack from Ohio said:

The "Interest Free Loan" to Uncle Sam, is not truly relevant any more. 

I've had clients over the years owe money, and then smile and say "I don't let the govt use my money interest free!!".  This statement is supposed to convince the listener that the client is some kind of investment genius and savvy economist.

But if you put the tax return of this "genius" under a microscope you find out more.  First I haven't had a single one of these geniuses report more than $10 in interest income, so they're obviously not bankrolling the tax they should have been paying.  Secondly, they owe so much money on April 15th that it's obvious they should have been paying estimated payments.  Thirdly, in most cases they can't seem to have enough cash to pay what they owe on April 15th and beg for an installment loan.

I think those who claim to not let the govt use "my" money are indeed not interested in financial management, but instead invest in honking new trucks and Carribean vacations.

[Abby Normal]

4 hours ago, Patrick Michael EA said:

I'm sure many of us will be getting calls from clients asking for projections to see if they're having enough withheld after they see this (already saw the article posted on social media).  Just wondering on how you are planning on handling these requests.  Will you be charging for the projection and if so, how much?

 

 

I included a 2018 projection with every return this year. Usually with exact same income, but if I knew 18 income would be different, I changed the numbers. Also assumed a decrease in withholding.

Only took a few minutes, in most cases.

So my clients have already paid for it. Any further projections will be billed at normal hourly rates.

 

[jklcpa]

My procedure was very similar to Abby Normal's, including projections in the package with certain items highlighted with notations. I spent as much time going over that as I did going over the actual returns with the clients.  

[JohnH]

This perspective of "investing the money myself rather than giving an interest-free loan to the government" brought back memories of how I actually handled the conversation many years ago (when the interest rates were high enough that it mattered).  I'd usually take a look at the amount of interest/dividends that the taxpayer was already reporting.  In cases where they actually had significant savings/investment income already, I'd have the conversation about dialing in the withholding to match the liability.  But if they had negligible savings/investment income, I'd generally just tell them it's better to overpay than to owe when they file.  Most of the time that would end the conversation, because they were unlikely to save/invest the difference and were just repeating a phrase they had heard somewhere, without any real appreciation for what it took to follow through. 

[Abby Normal]

I have a similar conversation with some of my wealthier clients who don't want me to apply refunds to both the first and second quarter, when filing close to 4/15. IT'S ONLY ABOUT SIX WEEKS THAT YOU'LL HAVE THAT MONEY. You'll only earn about $10 of interest on that 5,000 estimate and that's if you put the refund in your savings account. Is that really worth it?

[Roberts]

Trying to tell a spender that they should be a saver is just whistling in the wind. Giving a spender financial advise as if they are a saver can be very dangerous.

 

 

[Catherine]

1 hour ago, Abby Normal said:

who don't want me to apply refunds to both the first and second quarter

I do the opposite - I have the client keep tax years utterly separate.  Even when it means getting a refund and sending a separate check in for nearly the same amount.  Why?  Because if something is amiss and the IRS changes the refund amount, now you have dragged another tax year into the mess.  The year that did not get the expected refund, and the year that did not get the expected estimate tax payments.

Neither is wrong, just a difference in style.  But to my mind, keeping the years separate is worth the slight extra hassle.

[SaraEA]

I too ran projections for most clients. I also offered to calculate from a paystub whether their reduced withholding would cut it.  I said I'd do it after tax season, and quite a few did forward recent paystubs.  I warned every single client that most projection software has weaknesses, that with the old software I knew where they were and what I had to watch or calculate manually, but with the brand new law there was not enough experience with the new software to catch the bugs.  I also told them that the new law is filled with errors and contradictions and will undergo loads of technical corrections.  Every client I did projections for was told that my results were a notch above a guess, not even an educated guess at that point in time.

It looks like no technical corrections will be made because the Democrats refuse to vote for them (need a true majority vote, unlike the tax bill itself). They don't want to look like they supported anything to do with the TCJA.  I'm not taking political sides here.  One side rushed the bill through, the  other side refuses to help them fix it, and taxpayers and tax pros, whom both sides are supposed to represent, are left in limbo.

Edited August 3, 2018 by jklcpa
edited out political commentary instead of deleting entire post.