Millions of middle-class Americans paid less in taxes this year, but still got a nasty surprise this tax season

A lower tax bill may not mean a larger refund check

According to the Treasury Department, most middle-income families are getting a tax cut, but those savings were generally reflected in reduced withholdings that resulted in larger paychecks over the course of the year. Therefore, taxpayers may receive smaller refunds than they are accustomed to or owe the government money if their 2018 paycheck withholdings weren’t enough to cover their tax obligations.

Even if the total amount they pay in taxes goes down, not receiving a refund check may have consequences for taxpayers who count on a lump sum via their yearly tax refund and weren’t anticipating the change. For instance, individuals and families, who are in the habit of putting their refunds toward a big-ticket item or a vacation, paying off debt, or depositing them in a savings account, may have to adjust their budgets–or in some cases, come up with funds to pay an unexpected tax bill. And for consumers with non-prime credit scores, an unexpected expense that amounts to more than 31 percent of their monthly household income creates a significant disruption to their finances. On average, it would only take an unanticipated expense of $1,400 to qualify as a crisis for these individuals.

Shockingly, half the country is still unaware of these tax law changes.  The legislation went into effect on January 1 of last year, which means it applies to the 2018 tax returns being filed right now. Like most of us, the new middle class, has trouble estimating taxes throughout the year to begin with.[RF1]  When you combine complex tax laws, income volatility, and year to year changes in deductions – it can be a recipe for disaster even if you pay less.

A clear understanding of how tax changes will affect them[RF2]  personally can give, consumers with non-prime credit, a leg up when looking to next year’s tax season. Resources are available that  estimate tax returns and withholdings as the year goes by. For many, a trip to the HR department can also help answer some basic questions. To Uncle Sam, thanks for the break – but try communicating it better next time!