AICPA sees financial satisfaction waning amid market volatility and tax season uncertainty

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Personal financial satisfaction declined in the fourth quarter of 2018 as stock market gyrations and the prospect of a government shutdown weighed on U.S. consumers, according to a survey by the American Institute of CPAs.

The AICPA’s quarterly "Personal Financial Satisfaction index" (PFSi) decreased for the first time in two years. The decline in the fourth quarter came after five consecutive quarters of record highs and seven quarters of financial satisfaction gains ended, erasing 24 percent of the PFSi’s gains from the previous three 2018 quarters. It marked only the fourth time the index has decreased since climbing up from an all-time low in the third quarter of 2011.

The decline in financial satisfaction came despite the Tax Cuts and Jobs Act, which Congress passed at the end of 2017. Pain from personal taxes is once again the leading contributor to the PFSi’s measure of financial pain, a title it has held for eight of the past 10 quarters. The first quarter of 2018 was the first quarter to show the impact from the tax overhaul. During that quarter, the PFSi’s measure of pain from taxes dropped 4.14 points. However, the AICPA foresees the new tax law could cause considerable pain for many taxpayers when they find out what they might owe the federal government once their taxes are prepared this filing season, or how little money they will be getting back in their tax refunds.

“Early in 2018, the IRS updated the withholding tables as a result of the TCJA tax rate changes,” said Julie Welch, a member of the AICPA’s Personal Financial Planning Executive Committee, in a statement. “In many cases, the federal withholding decreased, which resulted in Americans seeing a bit more money in each paycheck. However, those that didn’t check their withholding may be surprised by a smaller than usual refund, or worse yet, a balance due.”

On top of that, the unresolved partial government shutdown threatens to delay tax refunds for millions of taxpayers, which could lead to even greater financial pain this quarter. Last year, Americans received an average tax refund of $2,899, according to the IRS. This year, with household debt at an all-time high of $13.51 trillion, more than a quarter of Americans indicated they plan to use their upcoming tax refunds to help pay off debt. But the prolonged government shutdown could force them to change those plans.

“The government shutdown has brought increased attention to the need for an emergency fund as we are reminded that many Americans live paycheck to paycheck,” said Welch. “Imagine being without the necessary funds to pay normal living expenses, such as mortgage or rent payments and car payments, or unexpected expenses, such as a tax bill from the IRS. It’s a good idea to use at least part of a tax refund to pay down debt and start an emergency fund so if someone does happen to unexpectedly find themselves out of work or with an unexpected expense, they can help avoid negative financial consequences.”

The AICPA also polls CPA business executives about their expectations for the year ahead for their companies and the U.S. economy. The AICPA CPA Outlook Index decreased 2.8 points (5.1 percent) from the prior quarter. All the components of that index indicated declines for the quarter, especially U.S. economic optimism.

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Financial stress Tax planning Tax refunds Government shutdown AICPA