IRS reports decline in refunds and filings during first week of tax season

The Internal Revenue Service experienced a drop in both tax refunds and tax filings during the first week of tax season.

For the week ending Feb. 1, 2019, the IRS received 16,035,000 returns, compared to 18,302,000 returns in the first week of last year’s tax season, a 12.4 percent decrease. The statistics may have also reflected the impact of the partial government shutdown, which ended shortly before tax season officially began on Jan. 28. The IRS was able to process 13,306,000 returns for the week ending Feb. 1, 2019, compared to 17,931,000 in the first week of last year’s filing season, a sharp 25.8 percent drop.

The IRS also reported a decline in the number and dollar amount of tax refunds, with 4,672,000 tax refunds paid in the first week this year, compared to 6,171,000 refunds last year, a 24.3 percent drop. The average refund amount also declined, from $2,035 to $1,865, an 8.4 percent drop. The difference was even starker in terms of the total dollar amount of refunds, plummeting from $12.560 billion to $8.713 billion, a 30.6 percent tumble.

The Treasury Department pointed out that it nevertheless successfully kicked off tax-filing season last week. “Filing season has successfully launched with millions of tax returns having been filed,” said Treasury Secretary Steven Mnuchin in a statement Friday. “We thank the Treasury and IRS employees who have been working diligently to ensure the system is processing these returns efficiently.”

However, many taxpayers were complaining anecdotally on social media this past week about receiving far lower tax refunds this year or finding out that they owed heavy tax bills, thanks to the wide-ranging changes in the Tax Cuts and Jobs Act (see Taxpayers take to Twitter to voice frustration over tax refunds). Many of them were probably unaware that they needed to adjust their withholdings on their W-4 forms to account for changes like the elimination of the personal and dependent exemptions. The new tax law also eliminated or sharply limited a host of traditional tax deductions and tax breaks, while doubling the standard deduction and the Child Tax Credit. In addition, Congress failed to extend a number of popular temporary tax breaks that expired last year.

Sen. Ron Wyden, D-Ore., the ranking Democrat on the Senate Finance Committee, spoke about the withholding problem on the Senate floor Thursday. “Most Americans have their taxes withheld from every paycheck, and the Treasury redoes the math on withholding every year,” he said. “Obviously the math gets more complicated when the Congress passes legislation like the Trump tax law, which essentially triggers a tax policy earthquake. The outcome of these decisions about how much to take out of everybody’s paychecks is clearly going to have a big impact.”

The IRS encouraged taxpayers throughout last year to do a “paycheck checkup” and use the online withholding calculator to adjust their withholdings. But Wyden accused the Trump administration of intentionally allowing taxpayers to underwithhold from their paychecks last year so their take-home pay would appear to be much larger ahead of the November elections. “It sure looks like the Trump administration decided to put politics first, lowball the estimates of how much tax should be withheld from everybody’s paychecks, and lure people into the false sense of security that they’d gotten a big tax cut, courtesy of Donald Trump,” he said.

Wyden acknowledged that the Treasury Department updated the official IRS withholding calculator online and sent out new withholding forms for employers, but he pointed out that didn’t happen until Feb 28, two months into the new tax year.

“And furthermore, let’s be realistic about the prospect of Americans flocking to the IRS withholding calculator,” he said. “The taxpayers potentially affected by this underwithholding issue are parents with jobs to do and kids to look after. How can you expect those people to spend a whole lot of time doing tax math at the beginning of 2018 in order to head off a problem they don’t know anything about, and that might show up in filing season more than a year later?”

Wyden wrote to IRS Commissioner Charles Rettig last month encouraging him to waive underwithholding penalties for 2018, and the IRS has agreed to waive the penalties for some taxpayers (see IRS to waive tax penalties for underwithholding and underpayment). But Wyden doesn’t think it’s going far enough.

“Instead of penalizing those who paid less than 90 percent of what they owed in 2018, now they’re penalizing those who paid less than 85 percent," he said. "That was one small step in the right direction. But in my judgment, the IRS should do more, and keep it simple.”