Senior Partner of Graves and Associates Lynn Graves said Thursday some people can expect to see lower tax refunds this year, and some who have received refunds in the past can expect to owe Uncle Sam.
Graves echoed Missouri Revenue Director Joel Walters in explaining the problem is due in part to a mistake in paycheck withholdings made by the state for the past fifteen years. It was also the Tax Cuts and Jobs Act passed by Congress in 2017 that exposed issues. The law enacted a number of changes, including the way itemized deductions are factored in.
“All of the different changes that came through with this massive tax law change is exposing the problems that they had," he said.
Graves said the intent of the new law was to put money back into taxpayers' hands by the end of the year.
"The government's philosophy on the federal side was to reduce withholding taxes from people throughout the year so they would be getting more during the year to be spending and hopefully stimulate the economy," he said.
But failure to adjust W-4 exemptions under the new law apparently reduced withholdings by too much. As a result, more money than many taxpayers expect will be directed back to the IRS.
Graves said there are people who have been used to claiming minimal tax withholding exemptions in order to receive hundreds of dollars in tax refunds. But under the new law, those exemptions have disappeared. And some clients who have benefited by fatter paychecks along the way will end up owing money on April.
"One person had a six-or-seven-hundred-dollar refund last year, and they owe a couple hundred dollars this year," he said.
He said most of the changes the average taxpayer would be exposed to are calculation changes.
"It's not like they have to go get a whole bunch of records together to bring into us," he said. "In many cases, they have to bring less in to us."
Graves said to compare tax rates, rather than refunds when looking through these changes.
"You can't look at the refunds, because you're going to have refunds down because they reduce the amount of withholding being taken out.," he said. "What you have to look at is the amount of taxes- you go through the calculations and then you come down to, 'Okay, how much tax is owed this year versus how much tax was owed last year.”
He said for the most part, Missouri follows federal tax law, and Missourians' refunds will also be affected by what is allowed to be exempted.
"What they didn't really tell you was they eliminated all personal exemptions," he said. "They also eliminated any miscellaneous deductions."
Graves said W-2 workers, those who draw paychecks from employers as opposed to being self-employed, will be the ones most impacted by the changes.
"What we are seeing in our first few, say union workers, who would incur a lot of mileage traveling in between jobs in the course of the year and in the past deduct that mileage- they can no longer do that," he said.
Walters this week assured a Missouri House investigating panel the withholding error will not affect the amount of tax anyone owes. In the end, the tax liability is the same. But taxpayers expecting the same refunds or liabilities on their tax returns might be in for an unpleasant surprise.