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Financial Planning > Tax Planning > Tax Deductions

U.S. Tax Refunds Plunge 17% as Treasury Ratchets Up Defense

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Steven Mnuchin, U.S. Treasury secretary, exits after a Financial Stability Oversight Council (FSOC) meeting at the U.S. Treasury in Washington, D.C., U.S., on Tuesday, Oct. 16, 2018. Photographer: Andrew Harrer/Bloomberg Treasury Secretary Steven Mnuchin. (Photo: Andrew Harrer/BB)

Average tax refunds are down 17 percent so far in the first filing season under President Donald Trump’s tax overhaul, according to the IRS, prompting the Treasury Department to caution that the data contain aberrations and could be misleading.

Direct-deposit refunds dropped for the third week in a row this filing season to $2,703, from $3,256 a year earlier, for the seven days through Feb. 15, the IRS reported late Friday. The total number of refunds was down 26.5 percent to 23.5 million, it said.

In a statement late Friday, the Treasury Department said that there was high public interest in taxpayer data from the current tax filing season and that while refunds are down, individual taxpayers’ overall liability has also fallen, bringing larger paychecks.

“The size of someone’s tax refund says nothing about whether their taxes have gone up or down,” the department said. “Data this early in the filing season has many aberrations and isn’t useful in drawing broad conclusions on refunds overall.”

Taxpayers’ refunds in the first tax season since the overhaul was enacted are smaller than last year’s because the available deductions and credits, and revised withholding tables, changed. The IRS has waived some penalties for those who didn’t have enough withheld from their paychecks during the year.

Uncertainty about refunds and smaller checks could weaken consumer spending as taxpayers grow more cautious. U.S. retail sales unexpectedly fell in December, marking the worst drop in nine years, according to Commerce Department data.

The Treasury has defended the drop in tax-refund checks, which some are interpreting as a higher tax liability, rather than income distributed over 12 months. The agency released the data on Friday night instead of during the day.

As Democrats lay the foundation of their bid to unseat Trump in 2020, raising taxes on the wealthy is emerging as a central theme.

Republicans have joined Treasury Secretary Steven Mnuchin in the public relations battle about the tax law, with Senator Chuck Grassley and Representative Kevin Brady, who led the legislative efforts, earlier this week saying that “the size of your tax refund has nothing to do with your overall tax bill. It merely reflects what you overpaid the IRS in your paychecks last year.”

The Government Accountability Office estimated that 21 percent of taxpayers would owe money at filing time under the new law, compared with 18 percent under the previous law, because of the changes in the way withholding is calculated.

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