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Why treasury officials say smaller tax refunds are good thing

Posted at 2:16 PM, Feb 14, 2019

Americans are seeing smaller refunds this year thanks to the 2017 tax reform — and the Treasury Department says that’s a good thing.

The average refund is down nearly 9% so far this filing season, according to updated data released Thursday by the Internal Revenue Service. Refunds averaged $1,949 through February 8, compared to $2,135 for returns filed through the same period last year.

“Most people are seeing the benefits of the tax cut in larger paychecks throughout the year, instead of tax refunds that are the result of people overpaying the government,” a Treasury spokesperson said in a statement. “Smaller refunds mean that people are withholding appropriately based on their tax liability, which is positive news for taxpayers.”

This year’s filing season, the first under the 2017 Republican tax overhaul, is being closely watched as individual Americans begin to feel the impact of the biggest tax reform of the last 30 years.

The new rules lowered most individual rates and nearly doubled the standard deduction. The legislation also included sweeping tax cuts for companies, lowering the corporate rate to 21% from 35%.

Some workers saw an increase in their take-home pay last year after employers started using the new IRS income tax withholding tables.

Senior Treasury officials said early data from the first 12 days of the tax filing season shows a “solid start” with 30.8 million returns already processed, despite the impact of the partial government shutdown on IRS operations. Those numbers are down 6.9% from the previous tax filing year.

They said smaller refunds indicate that Americans are doing a better job of calculating their payroll withholding, though the officials acknowledged that many taxpayers view refunds as a “dividend or a bonus check from the US government.”

“It is not,” one senior official told reporters. “It is the government giving them their money back.”

The average American taxpayer got a refund of about $2,700 last year, according to IRS statistics.