What happened to my tax return?

If you are working the same job you had back in December of 2017 you can go back and see a slight increase in your paycheck beginning around February of 2018. For a person earning $70,000 a year, that increase would have been around $40 a pay period (if paid bi-weekly). If you earn around $35,000 a year, that would be approximately $20 a pay period.

This increase per pay period wasn’t really extra money. In past years that money would likely have been given back to you as part of your tax return for that year. With the changes to tax code, that money is simply no longer being withheld and stored by the IRS. As a result, unless you made adjustments to your W4 (or your employer made adjustments for you), you may see a smaller return on your taxes.

Some people thought little of, or maybe didn't even notice that they were receiving an extra $20 or $40 dollars a pay period. That money was soaked right into their monthly spending behavior. For those who keep a $0 sum budget for their household (all money coming in and going out is accounted for to the cent), it is likely they would have noticed that their monthly budgets had some money "left over". Having money "left over" would have been a trigger to repurpose the leftover income to debt repayment, emergency savings, investments, or to fund some other financial goal.

Unfortunately, those who didn’t repurpose the additional income they received may now find themselves at a loss for words. Changes to the tax code were arguably communicated in a way to make most people think they were keeping more of their money throughout the year and that they were going to get back a bigger return at the end of the year. For some, that simply won’t be the case.

With scaling measures put in place (offsetting tax credits given to upper income earners) to reduce many of the tax credits middle class income earners have come to rely on, over the next 4 to 5 years more and more may see lower income tax returns year over year.

There is a silver lining. Luckily, there is one change to the tax code that works out in our favor. Having less money withheld by the government from our paycheck is a good thing. When the government “holds” that money and gives it back to us as a tax return, we do not get the benefit of earning gains or interest. If we take the money that the government was withholding and use it to pay down debt, buy stocks, invest or place it in an interest earning account we allow that money to work for us.

Here is a link you can use to start investing that portion of your income the government is no longer withholding. Buy stock with Robinhood