CONNECTICUT MONEY: Tax cuts delivered average 25%

May 14, 2019

CONNECTICUT MONEY: Tax cuts delivered average 25%

This article was printed in the New Haven Register on May 13, 2019.

The 2018 tax season ended April 15 for most of us, and a natural question to ask is how much the average American saw his or her taxes drop as a result of the Tax Cuts and Jobs Act (TCJA).

Interestingly, it’s not too easy to find that information. There are hundreds of stories in the media about how many people were surprised to find they received a smaller refund than usual or actually owed more taxes when they filed. Those stories cast tax reform in a negative light, but could be are misleading: Refunds dropped slightly, on average, because many taxpayers neglected to change their withholding last year. It has nothing whatsoever to do with the amount of taxes you owed for 2018.

The Tax Policy Center estimated in late March that the average American taxpayer owed $1,260 less for 2018 than for 2017 as a result of the TCJA. In an April 11 article, the tax services company H&R Block confirmed that estimate, reporting that tax liabilities among its customers fell an average $1,200, while refunds actually went up an average $43.

In its report, Tax Reform Impact by State, H&R Block said that, through March 31, its clients’ average tax liability fell 24.9 percent. Tax refunds grew an average 1.4 percent, which confuses people who expected to see it rise more due to the TCJA. However, the IRS changed its withholding tables in February 2018, reducing the amount withheld from people’s paychecks. That means that most of the gain from tax reform showed up in paychecks throughout the year. H&R Block said its clients received an averaged $50 more in biweekly paychecks, or $100 a month.

Some people who failed to update their W-4 received more extra income during the year than the amount their tax liability decreased, so they ended up owing more money when they filed April 15. Nevertheless, most did not pay as much in taxes overall as in 2018.

Here’s a little-publicized fact: The TCJA increased the share of households that pay no federal income tax at all by about 2 percentage points, according to the Tax Policy Center.

Middle class households (those earning between $50,000 and $85,000 a year) got an average $800 tax cut, the center estimates, while those in the top 1 percent of income earners paid about $51,000 less.

Overall, 64 percent of households paid less in individual income tax for 2018 and 6 percent paid more due to tax reform, the Tax Policy Center estimates.

Locally, calls to New Haven-area CPAs confirm that the vast majority of their clients benefited from the tax reform law. Indeed, the H&R Block study shows that Connecticut residents came out on the high end of the national range, with an average tax cut of 26.2 percent. All 50 states saw a decrease in average tax liability: New Jersey residents saw the biggest benefit, with a 29.1 percent drop, while Washington, D.C., had the smallest decrease, at 18 percent.

Eric Tashlein is a Certified Financial Planner professional and founding Principal of Connecticut Capital Management Group, LLC, 2 Schooner Lane, Suite 1-12, in Milford. He can be reached at (203) 877-1520 or through www.connecticutcapital.com. This is for informational purposes only and should not be construed as personalized investment advice or legal/tax advice. Please consult your advisor/attorney/tax advisor. Registered Representative, Securities offered through Cambridge Investment Research Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors Inc., A Registered Investment Advisor. Cambridge Investment Research Inc., and Connecticut Capital Management Group LLC are not affiliated.