Skinnier IRS refunds disappoint Berkshires taxpayers

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The word "refund" came into use a thousand years ago in Middle English to mean "pour back."

Well, the spigots have tightened.

People in Berkshire County who use IRS income tax withholding as a kind of savings plan are finding, like wage earners around the country, that less money is pouring back this year, after changes in the U.S. tax system.

"We've had expressions of disappointment," said Melissa Baehr, community programs administrator for the Berkshire Community Action Council, which offers a free tax-preparation service.

Actually, "disappointment" doesn't quite capture it, she said. It's more like shock.

"It's really too bad, because a lot of our clients rely on this refund every year. When it's less money, it's less of an opportunity to save for a rainy day," she said.

For millions of Americans, the dull ache that is tax season typically ends on a happy note: money back from Uncle Sam.

But due to changes in withholding schedules last year, the size of average refunds is down 16.7 percent, the IRS said, based on returns processed as of Feb. 15. Earlier, based on the first two weeks of handling returns, refunds were down 8 percent.

That means the "tax time surprise" the IRS warned about is carrying more sting as the season progresses.

Instead of average refunds of $3,169 for the 2017 tax year, the IRS is returning average checks of $2,640.

Though the 2017 tax law means that most taxpayers will surrender less of their 2018 income to the federal government, many filers have been startled to realize they will get smaller refund checks. And the number of returns that qualify for any refund at all is down 26.5 percent as of mid-February, the IRS reported.

"Some of them thought we took their money," said Hayford K. Osafo, who runs Integrity Tax Service & Bookkeeping on Tyler Street in Pittsfield.

Osafo has had to explain to some clients that smaller or nonexistent refunds are the result of national changes in tax policy and how withholding is calculated.

The problem is related, in part, to elements in the 2017 tax law, the Tax Cuts and Jobs Act, that reduced use of itemized deductions and removed personal exemptions — even as it doubled the standard deduction.

Bryon Sherman, a partner with Smith, Watson & Co. in North Adams, points out that the government did advise taxpayers to recalculate their withholding amounts. The IRS site offered a calculator.

"It's not that they're collecting more in taxes," Sherman said of the IRS. "They did advertise it pretty well that you really needed to look at this."

Still, Democrats in Congress have been using the smaller refunds to criticize the tax law, which passed in December 2017 when Republicans controlled the House and Senate.

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The U.S. General Accounting Office warned in a report last July that 21 percent of taxpayers would owe more on their 2018 returns due to changes in withholding tables.

Two Democrats on the House Ways and Means Committee wrote to the Treasury secretary and IRS commissioner this month asking for enhanced relief from penalties for taxpayers who did not have enough income tax withheld. The IRS has already moved to waive underpayment penalties for some taxpayers.

Sherman said the situation with shrinking refunds arose because officials opted to give Americans more in their regular paychecks, not just the big one they expect annually from the IRS.

"The government put the money in the paycheck — which they may not have noticed as much," Sherman said of taxpayers.

Local experts say taxpayers who want to see larger refunds next year — or any at all — should check the math on their withholding.

"If they wanted the same refund, we could adjust it accordingly," Sherman said.

Baehr, of the Berkshire Community Action Council, said people trying to get by on small incomes are accustomed to getting a respite from day-to-day financial stress in the form of IRS refunds. For many, it is the biggest financial transaction of the year.

"We encourage people to save their refund for that rainy day," she said. "Sometimes people are one paycheck away from not being able to get to work."

The council continues to accept clients for the free tax-preparation services it provides through the Volunteer Income Tax Assistance program.

To make an appointment, call 413-418-3865. The program is available to people with household incomes of $54,000 a year or less.

Joseph Rosenberg of the Tax Policy Center estimates that two-thirds of taxpayers will pay less to the government because of the 2017 law. An additional 6 percent will pay more in taxes and the remaining 20 percent or so will owe about the same amount to the government, he told Mother Jones magazine.

"There are a lot of people, particularly lower income households, for whom their tax refund may be their biggest financial transaction of the year," Rosenberg said. "That is just a very salient and noticeable a transaction. And so you're going to notice a $500, $1,000, or even larger change in your refund more than you're going to notice the $20 or so from each paycheck."

In a notice on its website, the IRS continues to issue a caution: "Everyone should check their withholding."

The site, irs.gov/paycheck-checkup, provides an online calculator. The IRS recommends that people in certain circumstances review their withholding.

Those categories include people who formerly itemized deductions, had "complex" returns, earned high incomes, owed money to the IRS last year, had dependents 17 or older or filed as a two-income family or worked multiple jobs.

But if they've already gotten a "tax time surprise," they might already know they need a checkup.

Larry Parnass can be reached at lparnass@berkshireeagle.com, at @larryparnass on Twitter and 413-496-6214.


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