Why Your Tax Refund Might Be Smaller Than Expected

Summary

---

Podcast Summary: WSJ Your Money Briefing

Episode: Why Your Tax Refund Might Be Smaller Than Expected

Date: January 29, 2019
Host: J.R. Whalen
Guest: Richard Rubin (Wall Street Journal Tax Reporter)

---

Episode Overview

In this episode, WSJ’s J.R. Whalen speaks with tax reporter Richard Rubin to clarify why many Americans may see smaller tax refunds during the first filing season under the 2017 tax law. The discussion dives into how tax refunds and tax cuts differ, the effects of changed tax withholding policies, and how perceptions about refunds can impact both individual financial decisions and broader economic activity. Special attention is given to potential IRS delays following a recent government shutdown.

---

Key Discussion Points and Insights

1. Tax Refunds vs. Tax Cuts

Timestamp: 02:58

• Core Concept: Rubin explains that a tax refund and a tax cut are not synonymous.
  • Tax Cut: The difference in total taxes paid for 2018 versus the previous year, all else being equal.
  • Tax Refund: The result of reconciling what you paid in over the year versus what you ultimately owe.
• How to Compare:
  • Compare your 2017 and 2018 returns (assuming unchanged financial circumstances) to see the real cut.
• Key Quote:
  • “The important thing to remember here is that your tax refund and your tax cut are not the same thing.” — Richard Rubin (03:00)

---

2. Impact of Withholding Changes

Timestamp: 04:00

• Change in Paychecks:
  • Beginning February 2018, most workers saw slightly higher paychecks due to Treasury adjusting withholding tables.
  • Many people received their tax savings incrementally throughout the year rather than in a single lump-sum refund.
• Behavioral Impact:
  • Most did not adjust withholding, simply benefiting from smaller tax deductions per check.
• Key Quote:
  • “…You’ve gotten all or a big chunk of the tax cut already... you won’t get all of the tax cut as part of your refund.” — Richard Rubin (04:45)

---

3. Perception vs. Reality: Interpreting Refund Sizes

Timestamp: 04:58

• Potential Confusion:
  • Some may see smaller refunds and believe they fared worse under the new tax law, missing the fact that they already received the benefits.
  • Conversely, higher refunds can coincide with having overpaid taxes (and potentially even experiencing a tax increase).
• Tax Law Impact:
  • Two-thirds of households received tax cuts; only 6% saw tax hikes.
  • Factors: Lower rates, a larger child tax credit, and changes to deductions all play a role.
• Quote:
  • “...You can have situations where people have a big tax cut and then a smaller refund than they're used to… this refund season may shape people's perceptions of what the tax law did, but that may or may not bear [a] relationship to what the tax law actually did.” — Richard Rubin (05:14)

---

4. Economic Ripple Effects of Refund Size

Timestamp: 06:11

• Consumer Behavior:
  • Significant refunds (~$3,000–$4,000 for many households) are used to pay down debt, cover bills, or fund large purchases.
  • Retailers and restaurants anticipate seasonal boosts linked to refund spending.
• Economic Forecast:
  • Some estimates suggest refunds will be notably larger overall, possibly injecting $20–70 billion more into the economy.
  • A smaller-than-expected refund could prompt unnecessary caution and reduced spending.
• Quote:
  • “...For a lot of households, this really is...the biggest financial event of the year...that does have big ripple effects throughout the economy.” — Richard Rubin (06:33)

---

5. IRS Delays and the Government Shutdown

Timestamp: 07:22

• Potential Processing Delays:
  • The recent government shutdown may slow IRS response times and refund processing as workers return and tackle backlogs.
  • The tax season was already complicated due to new laws; the shutdown adds further complexity and uncertainty.
• Quote:
  • “They had thousands, tens of thousands of people who were out of work and are now...digging out from all the paper and phone calls...this tax season was going to be complicated and a bit tricky anyway because of the new law. And the shutdown certainly just makes that even more complicated.” — Richard Rubin (07:40)

---

Notable Quotes and Memorable Moments

• Richard Rubin:
  • “The important thing to remember here is that your tax refund and your tax cut are not the same thing.” (03:00)
  • “...You’ve gotten all or a big chunk of the tax cut already.” (04:45)
  • “...This refund season may shape people's perceptions of what the tax law did, but that may or may not bear [a] relationship to what the tax law actually did.” (05:14)
  • “For a lot of households, this...is the biggest financial event of the year...that does have big ripple effects throughout the economy.” (06:33)
  • “This tax season was going to be complicated and a bit tricky anyway because of the new law. And the shutdown certainly just makes that even more complicated.” (07:40)

---

Timestamps for Important Segments

• Tax Refunds vs. Tax Cuts: 02:58–04:00
• Withholding Changes and Paycheck Impact: 04:00–04:58
• Perception of Refunds & Economic Behavior: 04:58–06:11
• Economic Effects of Refund Sizes: 06:11–07:22
• IRS Operations and Delays: 07:22–08:12

---

Summary Tone

The conversation maintains a practical, explanatory tone with an emphasis on debunking common misconceptions about tax refunds and illuminating the complex reality behind new tax policies. Rubin offers clarity on these complicated financial matters, always circling back to the real impacts on American taxpayers and the wider economy.

---

Transcript

[A]

This podcast is brought to you by relioQuest. Cybercriminals are constantly attacking. They want your data. They want your identity. They want your innovation. RelioQuest fortifies your business with agentic defense AI that detects, contains and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now and delivers insights to help them predict what's next. ReliaQuest agentic defense for the enterprise. Learn more at reliaquest.com that's R E L I A Q U E-S-T.com.

[B]

With your Money briefing. I'm J.R. whalen at the Wall Street Journal in New York. It's tax season. That means you may have a tax refund coming your way. That's the good news. The not so good news is, thanks to the tax law might not be as big as you were expecting, but you're not being swindled out of any money. We'll explain in a moment. First, these money and market stories you should know as we watch our 401k accounts rise and fall with the stock market. We Word came in late Monday that may spook Wall street traders. While delegations from the US And China will resume trade negotiations in the Capitol on Wednesday, the Wall Street Journal has learned early indications are the two sides remain sharply divided. That suggests long odds of cutting a deal before a March 1 deadline. The talks in Washington are aimed at warding off the Trump administration's plans to raise tariffs on $200 billion of Chinese goods to to 25%, up from the 10% imposed last year. The Journal also reports a main sticking point will be Beijing's opposition to US Demands for deep structural changes in its economy, including eliminating subsidies to favored industries and regulatory help and other favors for Chinese companies. And how much money do you have to make in order to be considered rich? In a survey by the polling company YouGov, that number comes in at about $100,000 a year. 56% of those surveyed see $100,000 as the threshold. But 87% of people who make $90,000 or more say they didn't consider themselves rich or poor. And when it comes to what constitutes being poor, 68% said people making $7.25 an hour, which is equivalent to the federal minimum wage, fell into that category. The survey's lead writer says that people think they've escaped being poor at the $30,000 a year level. The tax filing season kicked off on Monday. It's the first tax season under the 2017 tax law. And that has unearthed a slew of questions, most notably about your tax refund. We've got just the person to sort this out for us. Wall Street Journal tax reporter Richard Rubin is on the line from our Washington bureau. So, Richard, the tax law passed in 2017 resulted in a. But you point out in your story that the actual refund that people get will depend on taxes they had taken out of their paychecks during the year.

[C]

The important thing to remember here is that your tax refund and your tax cut are not the same thing. So your tax cut is what you paid in taxes for tax year 2018 compared with what you would have paid under the old system. The best proxy for that is really to go look at your 2017 return and look at your 2018 return and compare the two of them. If nothing much has changed in your circumstances, that is, if your income and family size and major deductions or major expenses haven't really changed, then you should be able to kind of lay those two against each other and see what tax cut you got or didn't. The refund is a different thing. The refund is essentially you and the IRS settling up at the end of the year and saying, okay, here's what you paid during the course of 2018, here's what you owe, and. And then what the sort of ultimate reckoning is how much you get back. Most people do get refunds, but that refund isn't necessarily the same thing as the tax cut.

[B]

Now, there were some changes to withholding put into effect by the Treasury. Some taxpayers may not realize that they've already benefited in their paychecks, and those benefits won't appear as a lump sum in their refund check.

[C]

That's right. So starting About February of 2018, paychecks got a little bit larger for most people. And some people went in and adjusted their withholding to, you know, line up exactly how much they were going to get as a refund versus how much they were going to have taken out of their paychecks. But most people probably didn't do that and just took the extra 20, 30, 40, 50 bucks, whatever it was, depending on your income in additional lower taxes withheld, which means additional dollars in your pocket. And so for some people, a lot of people, you've gotten all or a big chunk of the tax cut already. And so, you know, you'll get maybe a bit more as part of your refund than you would normally get, but you won't get all of the tax cut as part of your Refund.

[B]

Now, you spoke with someone from Jackson Hewitt Tax Service who pointed out that people may misjudge their own economic situation because their refund check is lower, but the opposite could actually be true.

[C]

Yeah, I mean, you can have situations where people could have gotten a refund tax increase and ended up with a larger refund because they paid more over the course of the year. You can have situations where people have a big tax cut and then a smaller refund than they're used to. And so in many ways, this refund season will may shape people's perceptions of what the tax law did, but that may or may not bear relationship to what the tax law actually did. And two thirds of households got tax cuts because of the law. They will pay less in federal income taxes than they would have under the old system, and only about 6% will pay more, more than they would have under the old system. But people, you know, have their perceptions and perceive things based on refund size, based on deductions they may not be able to claim. But there's all sorts of pieces that go into this. It's not just what deductions you can claim, but the, the rates are lower, the child tax credit is bigger. And so all of those things weigh against each other as you're calculating your taxes and figuring out whether you got a tax cut or, or not, and whether you're getting a bigger tax refund or not.

[B]

And for taxpayers who don't quite understand it, they could wind up not spending as much if they misjudged their own economic situation and the economy could suffer really unnecessarily.

[C]

Yeah. Though, you know, we do expect that tax refunds as a whole will be somewhat larger than in the past. I've seen estimates that go from 20 billion higher economy wide to 70 something big, you know, higher economy wide. So they may well be larger than last year. And that does flow directly into the economy. Retailers, restaurants, all sort of depend on how having the sort of steady flow of money coming out of people's tax refunds. You'll see sales that are announced around this time of year as people start anticipating their refunds. And for a lot of households, this really is, you know, a 3, $4,000 refund. It really is the biggest financial event of the year. And that means they pay down debt, they pay back bills, they stick it into savings they have saved up for a major purchase. Any number of things that people tend to do with, with that money when they have this one big lump sum that comes in, you know, and so that does have big ripple effects throughout the economy. And so if people get more than expected, more than they thought they were going to get, you might see some slight economic boost from that. And the reverse is certainly true as well.

[B]

And aside from the impact of the tax law, are refunds or communication from the IRS expected to be delayed significantly as a result of the government shutdown that just ended?

[C]

So that's something we're still trying to get a handle on. The IRS is, you know, is opening up this tax season this week, and we'll start communicating more with taxpayers about what they should expect in terms of how long it'll take to receive refunds, to resolve any problems that might exist as your return gets processed. You know, they had thousands, tens of thousands of people who were out of work and are now coming back to work and digging out from all the paper and phone calls and whatever that they've got. So I think it's going to take a little time for the IRS to sort itself out and figure out exactly how this, this tax season is going to run. This tax season was going to be complicated and a bit tricky anyway because of the new law. And the shutdown certainly just makes that even more complicated.

[B]

All right, Wall Street Journal tax reporter Richard Rubin on the line from us, from our Washington bureau. Just the perfect man to help us understand all this. Richard, thanks for coming on the line.

[C]

Yeah, thanks for having me.

[B]

And that's your money briefing. I'm JR Whalen in New York for the Wall Street Journal.

[A]

This podcast is brought to you by reliaQuest. Cybercriminals are constantly attacking. They want your data. They want your identity. They want your innovation. ReliaQuest fortifies your business with agentic defense AI that detects, contains and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now and delivers insights to help them predict what's next. RelioQuest agentic defense for the enterprise. Learn more at reliaquest.com that's R E L I A Q U E-S-T dot com.