Many folks who have already completed their income tax returns for 2018 (which is payable in 2019) are asking the question:  Why is my refund lower than it has been in prior years - especially since the well-publicized tax reform bill was in full effect during 2018?  It doesn't  help that many don't fully understand tax law to begin with - yet alone the way that the reform was to impact their individual returns.

First and foremost - the facts:  The tax reform bill that was signed into law late in 2017 had a direct impact on (almost) everyone's 2018 tax commitments.  Yes, it did advertise that tax rates for almost everyone would be going down.  And - in fact, that did play out over the past 12 months.  Confused?

With the tax reform legislation, employers were subjected to an overhaul of the generalized withholding tables used in payroll.  Said differently, because your tax liability was reduced, your employer took less money out of your gross earnings to accommodate that.  Another way of looking at it is this way:  You received your tax reduction with each and every paycheck you cashed during the 2018 tax year.  Consequentially, when your 2018 taxes are calculated - there isn't any additional money coming your way; you've already received it.

While this might have come as a surprise to those that depend upon receiving a sizable tax refund each year, it does shine the spotlight on why you shouldn't determine your withholding that way.  If you receive a tax refund, you're really getting your own money back - money that the government has had - interest free - for the past 12 months.  Doesn't it make more sense to receive those funds as part of your net paycheck earnings all year long?

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