Tax Refund Returns for 2019 are lower than previous years and Families are hurting

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Last year’s tax cuts filled American households with hope as they anticipated their returns this spring. But, their expectations set them up for disappointment when they saw a decrease in refund amount compared to previous years.

In just the first week of the 2019 filing season, Americans saw an average decrease of eight percent in their refund checks. Here’s what this means for their respective families and financial futures.

Even With an Increased Child Tax Credit, Families Still Suffer

Families with dependents had an advantage over single filers and those with unreimbursed business expenses. But, families that itemize their deductions faced a higher chance of receiving a reduced refund amount..

Having children increases the likelihood that your family might experience an unexpected hardship. For this reason, many would-be refund recipients planned to use their tax return checks to handle immediate expenses. Compared to previous years, Americans consequently faced more risk during this year’s tax season.

While families weren’t among those who were primarily targeted, they still absorbed a considerable amount of the shock.

Lower Tax Returns Affect Debt Management and Financial Planning

Americans do sometimes use their annual tax return to treat their families to a vacation or splurge purchase. However, that number fell to just three percent compared to the five percent of Americans who used their tax refund to splurge last year. Instead, many planned to use their 2019 refund to chip away at their debt balances.

More than one in three Americans are close to reaching their credit card limits, making debt repayment a major looming goal for much of the country.

Decreased Refunds Influence Retirement Decisions

To compensate for their reduced tax refunds this year, only seven percent of Americans planned to allocate the sum to toward retirement.

The tax reform law initiated in late 2017 led to a few substantial changes regarding deductions that might affect your retirement plan.

This year’s adjustments may also drive people to change their retirement allocations before they file for 2019. Some changes might include adding more money to long-term accounts such as a 401(k) plan.

Choosing to automatically invest a part of their salary allows taxpayers to reduce what they owe for that income until they withdraw from qualifying accounts.

By receiving less than they expected this year, many people who are actively planning for their retirement will likely see the need to tighten up in preparation for their next tax bill.

More Americans Rely on Personal Financing to Bridge the Gap

Many individuals planned to use their refund to reconcile a significant expense or upcoming debt payment. For those who didn’t receive what they were expecting, alternative financing could prove to be a quicker and more efficient option.

There are a variety of options available for those who need cash immediately, such as an auto title loan or a home equity line of credit. Many Americans also opted to apply for a refund anticipation loan from the IRS as a short-term financial fix.

Experts Warn Against Counting on a Refund

It’s likely too late for many people to change how their families were initially affected by the new tax reform bill. But, experts advise taxpayers against relying on a potential refund to handle immediate expenses.

These recommendations were based on this year’s slower processing rate and general confusion surrounding the new tax law. However, it is sound advice that might prevent the same type of chaos in the future. If at all possible, taxpayers should plan to owe or break even come tax season. This might involve postponing large purchases, such as a car or home down payment.

Tax law changes and miscalculated adjustments affected a large percentage of United States workers, which has driven families to fall back on alternative methods to make ends meet. Tax season is already a notably stressful time for most Americans, but this is especially true for those who expected to receive a higher return this year.

If you were among the millions of Americans who were disappointed upon receiving their 2019 tax return, consider utilizing one of these financing options to bridge the difference. Check out the video below for more information: