2018 Tax Returns: Why are Tax Refunds Decreasing?

2018 Tax Returns and Declining Tax Refunds

Filing for your 2018 tax returns? While the deadline to do so isn’t until April 15th, tax preparations in some households are already well underway. But those looking forward to a size-able refund may want to temper their expectations. In a recent analysis of taxes filed through January, the Internal Revenue Service is reporting that the average refund received so far is 8.4% lower than those processed in January of 2018.

Understandably, people are not happy about this. The lower refunds are causing an uproar on social media. In part because many folks depend on their large refund to pay down credit cards, student loans, make household improvements or otherwise delayed purchases. So what’s caused the decrease in tax refunds?

Tax Refunds Declining

One reason for smaller refunds, or even a larger tax bill due? The changes made to the tax code signed into law in December of 2017, also known as the Tax Cuts and Jobs Act. While signed into law two years prior, it is first affecting 2018 tax returns filed on or before April 15, 2019.  One of the key changes that individuals can no longer claim? Unreimbursed expenses relating to owning and operating their personal vehicle for business purposes.

Business Mileage is No Longer Tax Deductible

In 2018, employers could reimburse their employees tax free for business travel at a rate of 54.5 cents per mile. But the actual costs an employee incurs are high. Take for example, car payments, insurance, gas, maintenance and related expenses. If the reimbursement didn’t cover these expenses, employees were able to write off the difference to the extent it exceeded 2% of their adjusted gross income.

Employees who received monthly car allowances, or who received little-to-no reimbursement for the costs they incurred driving for work, really liked this deduction. Over 5 million taxpayers claimed unreimbursed mileage in 2016, netting $35 billion in deductions. With that deduction missing, it’s no wonder so many of January’s filers are feeling the pinch. But how much is the actual impact? Here’s an example.

Difference Without Driving Deduction

Consider a typical pharmaceutical sales rep who drives their own car to their sales appointments. Their typical yearly mileage is around 20,000 miles. In 2018, that would have yielded $10,900 of potential itemized deductions. Those are no longer available.  The same deductions have disappeared for pizza delivery drivers, grocery store merchandizers and everyone else who uses their car for work. Beyond simply commuting to the office, that is.

A Simple Solution

These changes to the tax code have not changed the Fixed and Variable Rate Reimbursement (FAVR) model laid out in IRS Revenue Procedure 2010-51. FAVR is a unique business vehicle program because it can benefit both companies and employees. FAVR benefits employers seeking cost saving measures, increased efficiencies and higher productivity. At the same time, it saves employees time and provides them with regionally-specific reimbursements. These reimbursements have the additional benefit of being tax-free. And Motus is the leader in helping organizations implement these programs. Programs that take advantage of this piece of the tax code to save costs and improve employee satisfaction.

Are you an employer helping your team understand the reasons why their refunds are lower this year? Are you looking for ways to fix it? We’re here to help.  Whether you’re looking for more information on tax law impacts or a more flexible vehicle program, you can contact us via phone at 888-312-0788 and email at info@motus.com.

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The Author

JD Miller

JD Miller is the Chief Revenue Officer at Motus, LLC. With a long track record of working with startup and pre-IPO firms, his skill set includes leading sales transformations, building high-performing sales teams, developing incentive and compensation plans, and implementing quick growth/sales strategies that PE firms want.

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