Here's how big tax refunds could be this year for people earning between $21,000 and $266,000
Vivien Killilea/Getty Images for Fast Company
- It's the first tax season under the new tax law President Donald Trump enacted in late 2017.
- While a majority of Americans saw a decrease in their overall tax bill for 2018, many complained about smaller refunds during the first few weeks of the tax-filing season.
- A tax refund means you had too much withheld from your paycheck for taxes. The amount withheld is determined by the number of allowances you claim.
- Business Insider calculated federal tax refund amounts for different income levels for a single person with no dependents who claims zero allowances.
- The IRS withholding calculator recommends the typical person in this situation claim two allowances. Doing so would minimize their tax refund while still covering their tax liability.
Americans love tax refunds - they're a form of forced savings and often act as a reset button for a family's finances.After weeks of worry about smaller tax refunds, the average refund size by mid-March was up to about $3,000 - nearly the same as this time last year, according to IRS data.Advertisement
But with the passage of President Donald Trump's tax law, some Americans may be receiving smaller refunds than previous years, but it doesn't mean their taxes went up. In fact, the majority of Americans received a tax cut, Business Insider's Bob Bryan reported.
The tax law instituted new guidelines for how much employers should withhold from employees' paychecks for taxes. The amount withheld is determined by the number of allowances the taxpayer claims, which can be adjusted at any time throughout the year."Depending on a filer's tax situation, they may not get as large of a refund this year as they're used to if they didn't adjust their withholdings in 2018. That said, they shouldn't immediately be alarmed if that's the case," Mark Jaeger, the director of tax development at TaxAct, told Business Insider.
"Just because you receive a small refund doesn't mean you didn't get everything back you were owed or that you're worse off financially - it most likely means you paid the right amount of federal taxes you owed during the year and didn't overpay," Jaeger said.The government recommends a single person with no dependents and one job claim two allowances to get as close as possible to covering their tax liability. That person will also take home a bigger paycheck throughout the year than if they claimed one or zero allowances, allowing them to potentially save and invest more.Read more: How to use H&R Block to file your taxes for free Advertisement
"Many filers received a boost in their paychecks throughout 2018; that's where the remaining amount of their refund went," Jaeger said. "Instead of waiting to receive their money as a tax refund, they received it all year long."
How we calculated tax refund sizes
To find out how workers fared, we calculated federal tax refund amounts for different income levels based on the following assumptions: A single filer who makes a 10% pretax retirement contribution (up to the 2018 maximum $18,500), takes the standard deduction ($12,000), and claims zero federal withholding allowances.A person who claims zero allowances will have more money withheld from every paycheck, but likely end up with a tax refund when filing their tax return. "Some individuals like receiving a larger refund because they use it as a savings account," Jaeger said. "It's a way for them to save a significant chunk of money throughout the year."Advertisement
Below, here's how big tax refunds could be this year for workers at different income levels.
Personal Finance Insider offers tools and calculators to help you make smart decisions with your money. We do not give investment advice or encourage you to buy or sell stocks or other financial products. What you decide to do with your money is up to you. If you take action based on one of the recommendations listed in the calculator, we get a small share of the revenue from our commerce partners.
$21,610: Fast-food cooks
Waiters and waitressesAdvertisement
$40,840: Travel agentAdvertisement
$49,650: Chefs and head cooks
$55,270: Commercial divers
$66,990: Insurance sales agents
$74,680: Dental hygienistsAdvertisement
$77,920: Accountants and auditors
$87,530: Computer programmersAdvertisement
$91,790: Civil engineer
$99,580: Electrical engineersAdvertisement
$107,480: Nurse practitioners
$115,300: Aerospace engineersAdvertisement
$161,280: Airline pilots, copilots, and flight engineers
$196,050: Chief executivesAdvertisement
$208,560: Family and general practitioners
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