If your refund isn’t as large as you expected, there are a lot of reasons that could be the case:
Although tax law changes lowered the rates for five of seven tax brackets, your refund may not be as big as you expected because less income tax was taken out of your paychecks throughout the year. Rather than withhold the same amount of tax as they did from your paychecks in 2017, your employer took out less so you didn’t pay the IRS more than you needed to (which is what you get back in your refund). If you didn't update your W-4 for 2018 (and most people didn't), it’s highly possible this is why your refund isn’t as large as you expected.
We've got some other possible reasons for a year-over-year refund decrease. Keep in mind that without comparing your 2018 and 2017 returns line-by-line, we can't provide you with a customized answer here.
Tip: If your refund is wildly off, you may have mistyped a dollar amount somewhere. An extra digit here, a missing number there, even a misplaced decimal point can have an eye-popping (but easily correctable) effect on your refund.
Life events can change your refund amount. Common examples include:
- You (or your jointly-filing spouse) took on an additional job (especially non-wage income which is taxed at the higher self-employment tax rate).
- You (or your jointly-filing spouse) got a significant raise but your W-4 stayed the same.
- You sold investments.
- Your filing status changed from last year.
- You have a child who turned 17 in 2018 who now receives the Credit for Other Dependents instead of the Child Tax Credit.
- You started receiving Social Security benefits or Roth IRA distributions.
- Your unemployment income is being taxed.
- You had gambling winnings.
- You're paying a penalty for not having health insurance coverage in 2018.
Strange as it sounds, sometimes an income decrease can reduce your refund. One example is losing the Earned Income Credit (EIC) because you didn't have any earned income in 2018.
One big change in tax year 2018 is a new cap, or limit, on the SALT deduction (state and local property, income, and sales taxes). For couples filing separately, the SALT deduction is capped at $5,000, and for everyone else it's $10,000. If you own property or live in a state with higher income taxes and property values, such as New York or California, your 2018 SALT deduction may not be as big as it was in prior years, when there was no cap.
In addition to the new cap on the SALT deduction, here are other commonly-lost credits and deductions:
- Your child turned 17 in 2018 (or has an ITIN) and is no longer eligible for the $2,000 Child Tax Credit (however, in its place you may be getting the new $500 Credit for Other Dependents);
- You have older dependents, and this year's higher standard deduction and/or $500 Credit for Other Dependents is giving you a lower tax benefit than last year's personal and dependent exemptions (read more here);
- You paid off your mortgage and can no longer deduct mortgage interest;
- You didn't qualify for the Earned Income Credit this year;
- You paid off your student loan and can no longer deduct the interest;
- You're no longer eligible for certain education credits (or you took a different credit this year);
- You didn't contribute to a Traditional IRA, or you weren't able to get the full deduction because your income was too high.