Plenty of time remains on the game clock when it comes to tax refund season. So the question remains: What's the final score? Will you win or lose?
The big headlines earlier this year about much smaller-than-average tax refunds painted a murky picture regarding the outlook for big-ticket sales for used cars, furniture, electronics and even special dinners out.
If many people were to see much smaller tax refunds, after all, wouldn't car dealers and retailers see sluggish sales early this year?
Tax refunds are the biggest single payday of the year for many families. In recent years, the average refund has amounted to around $2,900.
Yet some tax professionals who serve middle America report that all news isn't dire when it comes to tax refunds in the post-Trump tax cut world.
Used car sales still fueled by refunds
Let's take a look at data involving a specific group of shoppers who have used Tax Max – a tax preparation service offered through about 3,000 car dealerships from small independent lots to big franchise networks in all 50 states.
You've likely seen car dealerships with ads proclaiming: "We will match your refund up to $1,000 toward your down payment." Or "Buy a car with your W-2 now."
"We give the customer their refund at the dealership," said Bill Neylan, president and CEO of Tampa-based Tax Max.
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In such cases, Tax Max, which began in 1995, prepares returns for customers after they go to the dealership. The fee is $139 – with no extra cost for extra forms. Business owners and those with rental income would pay more.
The dealer may pay the fee or the consumer may pay it, depending on the dealership, Neylan said. Other fees apply if the consumer wants to take out a loan advance on their tax refund before the refund is actually issued by the government.
Neylan said about 90 percent of this season's returns have been filed for his tax business. And the average refund processed through Tax Max was up 9.8 percent this year through Feb. 28.
Tax refunds are up and down
The big news, so far, this tax season has surrounded people who had to pay far more than they expected once their tax returns were completed. But it's not the whole story.
Some homeowners who prepared their taxes already, for example, are complaining that they got hit by a significant limit on the deductions that they could take relating to their state and local income taxes.
On top of that, two-wage couples saw less money taken out for taxes from their paychecks in 2018 unless they went in and adjusted their W-4 withholding. As a result, they now face higher-than-expected federal income tax bills.
There's another side, however, that backs up the Tax Max data.
Early filers at Jackson Hewitt, which has locations at Walmart, saw larger refunds and overall lower tax liabilities, according to Mark Steber, chief tax officer for Jackson Hewitt in Sarasota, Florida.
Clients in the middle-income areas – say $100,000 or less – enjoyed a combination of lower tax rates and increased standard deduction amounts, Steber said. Some tax filers also have zero tax liability and benefit from refundable credits.
Steber noted that the majority of tax filers nationwide do not itemize to start, so they did not face any extra tax burden when some deductions were limited or eliminated.
Neylan said his typical Tax Max customer makes less than $100,000 and benefits from a variety of tax credits, such as the American Opportunity Tax Credit for qualified education expenses for college, the Earned Income Tax Credit for low-to-moderate income working households, and the Additional Child Tax Credit.
The EITC and the Additional Child Tax Credit are both refundable credits that can increase your refund even if you don't owe any taxes.
Many people who receive the EITC or other credits receive a higher than average refund in general.
"With the Trump tax plan, a lot of these credits were increased in various ways," Neylan said.
In particular, some taxpayers have benefited from the increased Child Tax Credit, as well as a new $500 nonrefundable credit for other dependents.
"Taxpayers with qualifying children under 17 eligible for the Child Tax Credit will benefit from the increased credit limit of $2,000 per child, up from $1,000," said Marshall Hunt, a certified public accountant and director of tax policy for the Accounting Aid Society's tax assistance program in metro Detroit.
Also, the refundable Additional Child Tax Credit limit went to $1,400, up from $1,000.
And the thresholds at which the Child Tax Credit begins to phase out were increased to $400,000 for joint filers and $200,000 for all others, up from $110,000 for joint filers, $55,000 for married filing separately, and $75,000 for other filers.
In Michigan, Hunt noted that the Michigan Homestead Property Tax Credit went up to $1,500 from $1,200. And the income limit at which the credit is eliminated was increased from $50,000 to $60,000 for total household resources. So more people are benefiting there, as well.
The IRS average masks the extremes in the tax refund saga.
The average federal income tax refund was $3,008 so far this year through March 8, up just a few dollars compared with $3,004 for the same time frame in 2018, based on IRS filing statistics.
In total, $160.87 billion was issued in tax refunds through the year – down about $5.3 billion from the year-ago period.
To be sure, the early March data is much better than what we saw in February.
The average tax refund was down a startling 16.7 percent from the start of tax season Jan. 28 through Feb. 15, based on data from the Internal Revenue Service.
The size of tax refunds picked up after Feb. 15 once the IRS was able to release federal income tax refunds associated with the Earned Income Tax Credit or the Additional Child Tax Credit.
The IRS, by law, couldn’t begin issuing those refunds before Feb. 15 to give the agency more time to detect possible fraud.
Jackson Hewitt's early filers, for example, include a good volume of those who claim the Earned Income Tax Credit as well as families benefiting from the doubling of the child tax credit to $2,000 on 2018 returns, Steber said.
It's too soon in the tax season to draw any definitive conclusions about the size of tax refunds. The 35-day federal government shutdown – which ran from Dec. 22 until Jan. 25, 2019 – caused a backlog of work at the IRS, too.
Remember, many benefited from receiving more money in their paychecks last year after changes in withholding tables, too.
Going forward, though, many still expect that average refunds will be down somewhat from a year ago as the season progresses and more people who owe money will file their tax returns closer to the April 15 tax deadline.
All tax surprises aren't bad
While average tax refunds nationwide are likely to be lower than a year ago, the impact on individuals will vary greatly by demographics and geography, said Jonathan Smoke, chief economist for Cox Automotive.
Consumers are seeing all sorts of tax-time surprises.
Roughly 30 percent of a group of adult workers surveyed by Cox Automotive saw bigger or smaller refunds than they expected.
Those seeing smaller-than-expected tax refunds include some homeowners in high-tax states that now face a $10,000 limit on the amount that they can deduct for state and local taxes, including state income taxes and property taxes.
Some seeing higher-than-average refunds include lower-income taxpayers who didn't itemize their returns last year but benefited from the near doubling of the standard deduction on 2018 returns, as well as families who benefited from the expansion of the child tax credit, Smoke said.
Smoke said the withholding of payroll taxes also influences the refund story.
The old tax structure – before the Tax Cuts and Jobs Act of 2017 – enabled more taxpayers to use itemized deductions. The tax package also eliminated exemptions that taxpayers could claim for themselves and their dependents. It made more sense then for some people to claim more allowances on their W-4 forms.
The new structure may require people to review how much money they're withholding in their paychecks. Many saw a boost in take-home pay in 2018 after employers began using adjusted payroll withholding tables.
Under the new tax rules, employees who claimed more than four allowances are more likely to have withheld too little for federal taxes and may owe money or have a much smaller refund than in the past, based on a study of payroll data at Cox Automotive, Smoke said.
"In our payroll data, the high tax states have a higher concentration of people with more than four allowances" on their W-4 forms, he said.
An unexpected surprise – especially when you owe money – isn't a good thing when it comes to taxes.
Many people depend on their tax refund money to either pay off debt or build savings. A smaller percentage intend to use their tax refunds to buy a used car or put a down payment on a car.
Many used car customers, though, maybe seeing somewhat larger tax refunds than a year ago.
"The heart of the used vehicle market seems to be made up with people who are more likely to be positively surprised," Smoke said.
Smoke said he would expect that much of the used-car market could still enjoy a strong spring market, thanks to tax refunds.
"The spring bounce is starting to unfold," Smoke said.
This article originally appeared on Detroit Free Press: Tax refunds went up for these Americans