If your tax return was less than expected, you’re not alone.
The 2019 Tax Cut and Job Act is leading to some anger around the country. Some say their refunds are smaller or they are cutting larger checks to the IRS.
But it's a little different in Nevada, Francine Lipman, a tax lawyer in UNLV's Boyd School of Law said. Here, the economy is based largely on service and many thousands of people survive on tips-- and they also tend to rely more on the standard tax deduction.
She explained the standard deduction went way up, which means more people are likely to choose it over itemized deduction.
“My expectations for Nevadans is higher than 90 percent will use the standard deduction," she said, "What does that mean? They’re not getting any federal tax benefit from their itemized deductions, which include state and local taxes, charitable donations, as well as, your home mortgage interest deduction.”
Plus, since Nevada doesn't have a state income tax, people living here won't get the kind of impact to the taxes that state's like California and New York, which have state income taxes, did.
Under the new law, taxpayers can't deduct state and local taxes, which has meant a tax increase for many people living in states with an income tax.
In Nevada, we have a state sales tax and that can be deducted up to a point.
“There is a maximum amount of state and local taxes that you can deduct and that amount is $10,000,” Lipman said.
Another reason people are seeing big changes in their tax returns this year is they didn't do what the IRS told them to do - a paycheck checkup.
Lipman explained that because the tax law was rushed through Congress and signed by the president quickly, the IRS had to scramble a bit to put together the new tables for tax withholdings.
The agency told taxpayers to check their paychecks to make sure they were withholding the amount they wanted under the new rules, but most people didn't do that.
Lipman said people knew the tax code had changed but they didn't think they needed to do anything themselves.
“For many taxpayers, that is simply not true. The tax formula changed the way the taxes are calculated and therefore the increase withholding or the reduction of the withholding – so the increased paycheck – fully accommodated that tax change and, indeed, may be overstated it so that their tax refund that they’re seeing 2019 is a lesser amount or in some cases they actually owe,” she said.
Basically, Lipman explained the IRS withheld less money from a lot of people. So, instead of getting a lump sum of a tax refund, they were getting extra dollars in their paychecks.
However, Lipman said the biggest changes in the tax law is not impacting individuals.
“All these individual changes I’m describing, I hate to tell you, but they are temporary," she said, "They expire at the end of 2025, which means if Congress does nothing the old rules come boomeranging back in January 1, 2026”
She said the biggest changes are to the corporate tax rate, which was lowered significantly. Lipman said that so far, “I’m not sure the benefit has gotten down to working people.”
She said the data so far shows the corporate tax rate cut is helping corporations and their high-income investors but not employees.
Francine Lipman, tax lawyer, UNLV's Boyd School of Law