Skip to content
News
Link copied to clipboard

What some folks are giving up this year because they didn’t get that big tax refund

Some folks can't buy the big-screen they were hoping to. It's a bigger deal for the 40 percent of people who plan to use their tax refund on paying down debt.

Ernie Anziano with his dog Wilbur outside his South Philadelphia home. Anziano was hoping to pay Wilbur's veterinary bills with his tax refund, but his refund this year will be less than he was hoping for.
Ernie Anziano with his dog Wilbur outside his South Philadelphia home. Anziano was hoping to pay Wilbur's veterinary bills with his tax refund, but his refund this year will be less than he was hoping for.Read moreTIM TAI / Staff Photographer

Ernie Anziano had just sat down to dinner in the city’s East Passyunk section when his friend who doubles as his accountant broke the news: He’s not getting the $2,700 he usually gets as his tax refund. This year, it’s more like $500.

Anziano, a 61-year-old volunteer coordinator at a nonprofit who also worked two part-time jobs last year, and his partner, Rick, were hoping to use their combined refunds on home repairs: Fix the garbage disposal, repair the bathroom they can’t use, replace the cabinet that fell off the wall.

Combined, they’re getting back about $4,000 less than last year. Now, they’re considering a home-equity loan to cover the costs.

As the 2018 tax filing deadline approaches on Monday, more people are learning that their tax refund this year — if it exists at all — is smaller than last year’s. Some are blaming sweeping changes to the code made as part of the tax law that passed in December 2017 and the IRS’ 2018 guidance on withholding.

Of greatest concern to Philly-area taxpayers is the new cap on federal deductions for property and state and local income taxes, which can be part of a combination of factors impacting changes in refunds, particularly for taxpayers who live and work in higher-tax locales.

For those who are used to an infusion of cash each spring, a smaller refund often means no big purchases (as 11 percent of respondents had hoped to make, according to a survey by investment company Betterment) or infusions of cash to cover debt (as 40 percent had expected, according to the same survey).

Anziano was hoping to use part of his refund to pay off credit card debt incurred recently to cover emergency veterinary care for Wilbur, his rescued Chihuahua-mix with a heart condition.

“I charged out of necessity thinking I could catch up,” he said. “So many people are in emergency mode right now because they’re not getting that money back.”

Data released by the IRS this week indicate that while the average refund is down just $20 from last year, the total dollars issued in refunds is down more than $6 billion, or about 3 percent, compared with this point last year. The agency reported it received about 1.3 million fewer returns by the same time last year, indicating taxpayers may be waiting longer to file this year to learn more about how the 1,000-plus-page tax law will affect their bottom line.

That can have wide-ranging consequences, and CBS News reported this week that economists are suggesting reports about smaller refunds contributed to weaker-than-expected retail spending in the first quarter of 2019.

Certainly, the changes to the tax law have left the typical taxpayer confused, according to investment company Betterment, which surveyed 1,000 people in February. While 85 percent of respondents felt at least somewhat confident in their knowledge of taxes, a quiz showed otherwise: Just half of respondents knew the percentage of their paycheck being withheld and only 16 percent knew the new standard deduction for single tax filers (correct answer: $12,000).

David Caplan, an accountant based in Lafayette Hill, said he’s prepared taxes for 27 seasons and has never seen such volatility. He said he can usually predict how a client’s refund will change year over year, but doing a tax return this year is “like a murder mystery. You don’t know if your client is going to get killed or escape unharmed.”

“There are so many different specific situations for people that it’s impossible to predict anything, and it’s making my job really hard,” he said. “I’m gritting my teeth when I hit the button. I never know what’s going to pop out.”

Caplan said while he’s “no fan of this tax law,” it’s not entirely to blame for smaller refunds. Many filers also benefit from the increased standard deduction or saw increases in their week-to-week take-home this year.

Anziano said while he saw a slight increase in his paycheck, it didn’t add up to be equivalent to the difference in his refund this year compared with last. Others, like Matt Stehman, didn’t see a paycheck increase but still saw a big decrease in the refund. The 36-year-old who works for the clerk of courts in Montgomery County and is vice president of the Royersford Borough Council said he typically gets back about $1,300. This year, he’s expecting $300.

Hannah Hammel, a 28-year-old paralegal and actor who lives in the city’s Grays Ferry section, said she’s received about $1,000 as a refund over the last five or six years, and this year expected to get a higher refund due to having fewer 1099s (though her income remained roughly the same). She’s getting back about $200 — minus the $160 it cost to run Turbo Tax.

Typically, she plops her tax refund back into her checking account and uses it for living expenses. This year, “I will buy a whole bottle of scotch, maybe,” she joked. “I could pay, like, one-third of my electric bill. That would be fun.”

Tax preparers say that while clients often rely on refunds for annual purchases, such as vacations or sending the kids to camp, it’s generally seen as better financial practice to not get a refund at all.

“Good accountants understand that getting a refund means you’ve given the government too much money, and it’s interest-free,” said Gene Marks, a CPA and president of the Bala Cynwyd-based Marks Group. “Some people like to use it as forced savings. I just think that’s ignorance.”

Marks recommended taxpayers review their W-4 and adjust their withholding to match what they anticipate they’ll owe in taxes next year.

Patrice Roach, who works at a nonprofit, said she and her husband, the purchasing director at a screw factory, are used to getting a combined $4,000 to $5,000 back. This year? Less than $500.

Roach, 52, of Willow Grove, said the couple were planning to use their refund to pay down debt and save for books for their college-bound son. They also usually set aside some of their refund to cover costs for traveling to an annual family reunion in July.

Now, the family’s using more coupons and making small changes, like getting two pizzas at Sam’s Club for $8.99 instead of spending more than $40 at the local pizzeria. But Roach doesn’t feel great about that change — as it has its own ripple effect.

“You’re not helping the local pizza parlor owner who is putting his kids through dance class and everything like that,” she said. “You’re helping that giant conglomerate.”