U.S. taxpayers’ 2018 tax liability was largely on par with their expectations, according to a proprietary income tax study released Monday by Janus Henderson Investors. Yet households with incomes of more than $100,000 were likely to be disappointed with their situation.
Asked about the amounts they paid throughout the year and any outstanding liability or refund, 32% of total study participants said they had expected to pay more than in 2017, while 30% actually incurred a larger tax bill than in the previous year.
Janus Henderson surveyed 1,002 U.S. adults in late March to gauge their perceptions and attitudes regarding the 2017 tax overhaul and its effect on 2018 individual tax returns.
Among a subsample of 254 respondents making $100,000 or more, 42% paid more in 2018, whereas only 36% had expected to incur a larger liability. At the same time, 19% paid less in 2018, compared with 28% who had expected their liability to be lower.
“The data confirmed what we had been hearing in qualitative feedback, which is that higher-income taxpayers ended up paying more in taxes than they expected,” Matthew Sommer, vice president and director at Janus Henderson, said in a statement.
Janus Henderson said these discrepancies were most likely due, at least in part, to the new $10,000 limitation on deductibility of state and local taxes.
It noted that although all taxpayers benefit from five of the seven marginal rates being reduced, higher income households with substantial property and state income tax liabilities may find that the lower rates are not enough to offset the new restrictions applied to their itemized deductions.
What Taxpayers Didn’t Know
The survey results showed that many consumers were in the dark about the new tax law despite being more than a year removed from its passage. When asked how familiar they were with the law on a scale of one (not familiar at all) to five (very familiar), the average mean score was 2.05.
Researchers also asked respondents how much they would be able to deduct if their property tax was $4,000 and their state tax was $8,000. Only 10% correctly answered $10,000.
Higher income households were likelier than others to seek the advice of an outside professional, but the survey found that some CPAs and advisors were not proactive in informing clients about the new tax law.
About 22% of higher income households that had a CPA and 42% that had a financial advisor reported that their professionals did not provide information to help them make the most of the new tax legislation.
Janus Henderson said this deficiency was an important gap for CPAs and advisors to close — and perhaps an impetus for individuals to reconsider their service providers.
Cash is king when settling up with the IRS, according to the survey. Among higher income households with an outstanding tax liability, 56% said they would withdraw money from a checking or savings account to cover the balance.
For households with income of less than $100,000 and that were receiving a refund, 38% planned to save the money, while 23% said they would spend it.
Across the entire survey sample, when asked to choose top priorities for 2019 from a list of common financial goals, 22% of respondents selected reducing debt and 15% establishing an emergency fund. These choices were also the top selections by higher income households.
Janus Henderson suggested that these results were a reminder that a solid financial plan is much more than simply asset allocation or investment selection.