Tax Seasoning: SALT and Preparers

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by Timothy D. Carkin
Senior Vice President

“…but in this world nothing can be said to be certain, except death and taxes.” – Benjamin Franklin

April 15 a.k.a. Tax Day for the United States, is fast approaching. As we near the finish line, many Americans are already seeing the impact; the IRS reported in congressional testimony earlier this month that they have issued 2.2 percent fewer refunds compared to the same time last year. This year’s lower refund culprit is more than likely due to the change in withholding tables as a result of the Tax Cuts and Job Acts, which took effect in 2018. Many Americans did not change, or change enough of, their payroll withholdings last year. It is good to remember that a tax refund is simply the government returning the excess they received throughout the year in withholdings. Whether you receive a return or must pay, this is the time to consult with your tax preparer and consider changing your tax withholdings.

Refunds Down in High SALT tax states

One of the most publicized tax code changes from the Tax Cut and Jobs Act was the cap on State and Local Tax deductions (SALT). While previously there was no limit, now the maximum allowable deduction is just $10,000. Estimates are that half the people who claimed this deduction last year will claim it again this year. Now that returns are submitted, we can see how this affects taxpayers in those states with high- and low-income taxes. Bank of America Corporation (BAC) analyzed the 10 top and bottom taxed states to determine the change in refunds. As you can see from the following charts, refunds for higher earners in high tax states are experiencing the largest declines in tax refunds. While it is too early to tell if the ripple effects will have a meaningful impact on consumer sentiment and spending, change behavior of state and local governments, or become a bargaining chip in future tax packages… on the margin, this is not a positive development.

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Week in Review and Our Takeaways

  • As earnings season kicks off, JPMorgan Chase beat estimates and Disney’s entrance into streaming video helped the equity markets rally nearly 1 percent this week

  • Jobless claims fell to a 49-year low and minutes from the last Fed meeting revealed a firmly neutral stance

  • This is a good time to consider your tax withholdings so we encourage you to speak with your tax professional