A new report predicts huge swaths of Americans should expect bigger tax refunds — but not everyone is set to benefit

tax refund

  • The
    new GOP tax law
    went into effect at the start of 2018, and a
    UBS analysis suggests it could have a big impact on federal

    tax refund
    checks set to go out next year.
  • UBS estimated that on average, married couples with children
    should see a pretty sizable bump in refund checks compared to last
    year, while single filers may see slightly smaller refunds.
  • Because of changes to the federal deduction for state and local
    taxes, residents of higher-tax locales like New York and California
    might also see a hit.

While filing taxes is never
fun, many taxpayers get a much-needed boost from the ensuing
refund. With a new tax
law
that went into effect at the start of 2018, many families
are set to see a bigger bump to their refund checks next
spring.

A recent note from a team of UBS analysts takes a look at
how tax refunds are set to change under the new law. The UBS
analysts estimated an increase in overall tax refunds between $42
billion and $66 billion next year compared to the 2017 tax
year.

The $42 billion estimate came from a top-down analysis using
estimates for total income and tax receipts so far in 2018 from the
Bureau of Economic Analysis. They then estimated changes in
deductions between 2017 and 2018 based on the likely effects of

the new law
, in particular the larger standard deduction, which
could lead to fewer tax filers itemizing deductions, and the lack
of personal exemptions.

Read more:
Tax Day is April 15. Here’s what you can expect when filing under
the new tax law

By applying
the new tax rates
to estimate the total amount of income taxes
due in 2018 and comparing that to the above estimates of tax
receipts, UBS found that the latter is about $42 billion larger
than the former, giving this value for the total increase in
refunds next year.

Bigger refund checks for married filers with children in 2019

UBS also did a bottom-up analysis of how various types of
households would see their tax refunds affected by the new law. The
analysts applied the new rates and IRS withholding guidelines to a
married couple with two children filing jointly and a single filer
taking the standard deduction at various income levels to estimate
how refunds would change between the 2017 and 2018 tax years.

They found that most married filers with two children would see
a pretty sizeable boost in their refunds for 2018 compared to 2017,
especially those making under $40,000 a year and those making
between $125,000 and $400,000. One of the biggest factors noted by
UBS was an increase in the size of the child tax credit and in the
income threshold for claiming that credit:

married filers

Meanwhile, UBS estimated that single-filers in most income
brackets will see a smaller refund on average in 2018 compared to
2017:

single filers

UBS combined this bottom-up analysis with statistics on how many
households fall into different income brackets from the Bureau of
Labor Statistics’ Consumer Expenditure Survey to estimate $66
billion in aggregate refunds in 2018.

The analysts also pointed out that there will likely be
geographic disparities in tax refunds next year. One of the changes
in the new tax law is a $10,000 cap on the deduction for state and
local taxes (SALT), which previously had no upper limit. That means
that high-income filers in jurisdictions with higher
state and local taxes
will likely have a bigger tax bill for
2018, and consequently a lower refund.

UBS named California and New York in particular as states with
higher taxes and thus larger shares of residents filing with the
SALT deduction, and with larger average SALT deductions claimed in
the past. The new limit on that deduction likely means
higher-income residents of those states will see smaller refunds
next spring.


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Source: FS – All – Economy – News
A new report predicts huge swaths of Americans should expect bigger tax refunds — but not everyone is set to benefit