Taxpayers unaware of filing deadline, withholding and tax law changes
Many taxpayers are unaware of the tax-filing deadline this year, as well as of the amount of taxes being withheld from their paychecks and some of the key provisions of the recent tax law, according to a new survey. Other surveys released this week revealed uncertainty about the new tax law.
One survey released Thursday by Betterment, an online financial advisor, polled a sampling of 1,000 people online and found that 85 percent of respondents reported feeling somewhat confident in their knowledge of taxes. However, when asked about specific tax matters, 23 percent of the respondents didn’t know the correct tax filing deadline for this year was April 15, 48 percent didn’t know tax rates for tax brackets decreased from last year, and 50 percent didn’t know how much was withheld from their paycheck for taxes
The survey also asked about consumers’ plans for this tax season, and found that 41 percent of the respondents plan to use tax refunds to pay off debt, but only 6 percent of them said they would use it to save for retirement. As a result of the Tax Cut and Jobs Act of 2017, 18 percent of respondents said they have increased their 401(k) contributions, while 10 percent have increased their IRA contributions. In the aftermath of the government shutdown, one-third of the taxpayers polled said they plan to file earlier than usual because of concerns about delays on their tax refunds. The survey found that 41 percent of the respondents plan to use at least some of their tax refunds to pay off debts, such as medical bills, car payments and credit card balances.
More Republicans than Democrats indicated they believe the majority of tax dollars aren’t spent wisely. When asked where they think the bulk of federal tax dollars go, the top response across all political affiliations was “bureaucracy and waste,” but Republicans were more likely to cite that response than Democrats.
“Taxes seem to be an almost universal source of dread and it’s clear that the news cycle this past year has brought additional stress and confusion to the equation,” said Eric Bronnenkant, head of tax at Betterment, in a statement.
A separate survey of tax professionals bears this out. The National Association of Enrolled Agents released a report Tuesday on the results of an online survey of 924 of its members. The enrolled agents polled mostly think taxpayers are unprepared for the current filing season. They believe more consumers will find tax preparation more challenging this year due to the Tax Cuts and Jobs Act and will seek the services of tax professionals.
The poll found 91 percent of the enrolled agents surveyed strongly agree that taxpayers are baffled by the TCJA and are unprepared to file. It’s not just the new tax law confusing taxpayers. Many businesses are also unprepared to deal with the Supreme Court’s Wayfair decision on online sales taxes. An overwhelming 86 percent of the NAEA membership believe that small businesses are unprepared to deal with the Supreme Court’s decision in South Dakota vs. Wayfair Inc. et al. When combined with tax reform uncertainty, 59 percent of the survey respondents believe there’s a perfect storm of doubt that will drive more taxpayers to their firms.
Despite the importance of paying attention to tax withholding in the wake of the new tax law, the survey found 90 percent of enrolled agents strongly agreed that taxpayers pay little or no attention to planning their annual withholding amounts. Many taxpayers found this tax season they unexpectedly owed money to the IRS, or they received a much lower tax refund than expected, because of the changes in the new tax law and the withholding tables.
“Refunds are top of mind when people think of tax season, but we should caution clients that the better metric by which to judge a tax return is total tax—and whether the return is accurate and defensible if IRS comes knocking,” said NAEA Executive Vice President Robert Kerr in the report.
When asked which documents taxpayers were least likely to remember to provide to a tax professional, the enrolled agents surveyed identified the Schedule K-1, Form 1095-A, Form 1099, Form 1099-S, 1099-R, and proof of health insurance as the most probable.
Swim with Sharks or File Taxes?
Another survey shows a combination of optimism and pessimism about the new tax law and taxes in general. The consumer finance site Wallethub released a taxpayer survey Tuesday. It found that fewer than four out of 10 people are happy with the tax changes from the Tax Cuts and Jobs Act, with 70 percent indicating they think the reforms benefit the rich more than the middle class. Similar to the Betterment survey, 89 percent of the respondents said the government currently does not spend their tax dollars wisely.
WalletHub also asked about Tax Day fears, and 31 percent of the respondents said making a math mistake was their biggest Tax Day fear, edging out not having enough money (28 percent) at the top of the list. When asked what they would do to have a “tax-free future,” 36 percent of the respondents said they would move to a different country, 24 percent would get an “IRS” tattoo, 15 percent would take a vow of celibacy, 11 percent would name their child “Taxes,” and 2 percent would clean prison toilets for three years.
According to WalletHub’s survey, nearly 50 percent of people would rather serve jury duty than file their taxes, 25 percent would miss a connecting flight, 21 percent would rather talk to their kids about sex, 13 percent would prefer to swim with sharks, 11 percent would spend the night in jail, and 11 percent would drink expired milk.
“Being on jury duty can be interesting and get you a few days off work,” said Michael Ettlinger, director of the Carsey School of Public Policy at the University of New Hampshire, in a statement. “You feel you are performing a useful service to your community. Dealing with tax filing is complicated and the consequences of doing it wrong can be substantial — which makes it stressful.”
When asked what they like more than the IRS, 42 percent said inlaws, 21 percent said snakes and spiders, 20 percent said cold showers, and 17 percent said traffic jams.
WalletHub also asked about attitudes toward accountants. While 56 percent of the respondents found accountants to be sometimes helpful, and 20 percent said accountants are a good deal, 20 percent said they’re overpriced and 4 percent said they’re a scam.