2019 income tax returns continue to be lower

Why Americans are frustrated with lower returns

It’s all about psychology.

The Internal Revenue Service warned that more people may owe money this tax season, but early returns show taxpayers may not be fully prepared for the change.

By passing the TCJA, the government adjusted the IRS withholding tables, aiming for a better balance — no refund and no money owed. Because of this, most employees saw higher paychecks throughout calendar year 2018, with less federal withholding.

But many Americans utilize a large tax return check in the spring to pay off credit cards or debt, or put the money toward a remodeling project, vacation or other large purchase.

Psychologically, if you’ve trained your mind to expect that fat check every spring, it’s the perfect storm of disappointment when you’re actually told you owe money or will receive a much smaller return.

Don’t loan the government your money

Essentially, if you receive a huge refund check each year, then you’ve given the government an interest-free loan to use your money all year long, then return it back to you in the spring.

From a tax perspective, that strategy doesn’t make sense. You get less money in your take-home pay all year. The government gets a loan, interest-free. You’re much better off to have decreased federal withholding during the year and a smaller income tax refund.

Do you depend on your tax return each spring? Consider a tax planning strategy with Morgan & Associates so that you are able to properly plan your withholding and spending throughout the year.