Why are so many Fort Wayne, Indiana residents getting lower Federal Tax refunds this year?

We have prepared close to 800 income tax returns so far at Small Business Services CPA Group.  Our clients are not necessarily typical since a large number of our clients own a business or own rental properties or are relatively high income with fairly complicated income tax returns.

So far among our clients about 3% have seen their Federal income taxes increase, about 12% have seen no change (mostly lower income retirees), and 85% have seen their Federal income taxes decrease.

That being said, in March of 2018 the Internal Revenue Service created a new income tax withholding table and most Indiana employers started using this new withholding table in either March of 2018 or in April of 2018.  This new withholding table was designed so that most Americans would receive more take home pay and have less money withheld and remitted for Federal income tax withholding throughout the year.

This change increased the take home pay of many employees significantly; especially those employees with higher incomes.  The new withholding tables caused millions of Americans to have too little Federal income tax withheld from their paychecks and many of those individuals are getting smaller refunds than they are accustomed to or they are owing taxes and having to write checks to pay the amount they owe the IRS by April 15th, 2019.

The vast majority of my clients are paying less in Federal income taxes for 2018.  It is common for one of my clients who had an effective Federal income tax rate of 20% last year to have an effective Federal income tax rate of 17% this year.  That being said, most of those same people are getting lower refunds or even owing the IRS because they received their tax cut through higher take home pay throughout the year.

Mike Sylvester, CPA/ABV, MBA


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