Despite warnings from the Internal Revenue Service that more people may owe money this tax season, early returns show taxpayers may not be fully prepared for the sticker shock.
At Gladys R. Wilson and Associates, a family-owned accounting firm on Chicago's Northwest Side that has been breaking the bad news to a growing number of customers, the reactions have ranged from frustration to a full-fledged taxpayer revolt.
"One customer was so upset she just walked out," said Sandra Wilson, a partner and daughter of the firm's namesake founder. "She said 'I'm not paying it' ... and she left."
More people are receiving less this year as a result of changed withholding guidelines under the new tax law, which took effect in 2018. Though most tax filers are still expected to get refunds, the amounts may be smaller and the number who owe taxes will likely be larger, according to the IRS.
President Donald Trump signed the Republican-backed Tax Cuts and Jobs Act into law in December 2017, a bill that brought sweeping changes to the tax code such as eliminating personal exemptions, nearly doubling standard deductions and lowering tax rates for individuals and corporations.
While nearly two-thirds of taxpayers are expected to pay less income tax in 2018, according to the Tax Policy Center, most employees saw the benefit in higher paychecks, with less federal withholding, throughout the year.
The government also adjusted withholding tables, aiming for improved accuracy -- no refund and no money owed. Thus far, that has led to at least the perception of fewer happy returns at tax time.
For tax year 2017, the IRS issued refunds to about 75 percent of taxpayers, with the average refund at $2,778, according to the Government Accountability Office.
Weekly filing reports from the IRS last month showed year-over-year declines in the number and size of refunds, fueling concerns over shrinking refunds. While the refund numbers have rebounded slightly in the most recent report on Feb. 22, the federal government is still in damage control mode, seeking to assuage worried taxpayers.
"There is a difference between a tax liability and a tax refund," the Treasury Department said in a news release last week. "The size of someone's refund is a separate issue from whether their taxes have increased or decreased."
Whether or not they come out ahead under the new tax law, many taxpayers count on their annual refund as a windfall to pay off credit card balances or make large purchases. When it's not there, or, worse yet, when they need to write a check to the IRS, it can be a blow to their budgets, according to Dan Rahill, a tax partner with Chicago-based accounting firm BDO.
"The withholding tables were changed to give people back more in their paychecks," Rahill said. "The problem with that is people are psychologically prepared for these refunds."
Rahill said taxpayers are better off "breaking even" on their returns. A tax bill can carry with it a penalty for underwithholding, while a refund is actually a loan to the government -- with no benefit for the taxpayer.
"From a tax point of view, you don't want to give the government an interest-free loan, and that's essentially what a refund is," Rahill said. "If somebody is due a $5,000 refund, that means during the year they gave the government a $5,000 interest-free loan."
That logic may be lost on even financially savvy taxpayers.
Many of Rahill's higher-income clients have yet to file this year, waiting for Schedule K-1 partnership income statements, due March 15. But they too will likely feel the pain of smaller refund checks, he said.
"Nobody has called me up to yell about their smaller refund, but I expect I will see it in the next month or two," he said.
At Gladys R. Wilson and Associates, a 32-year-old firm whose client base is 70 to 80 percent Hispanic, the tax season of discontent has already set in.
The firm has been warning its 10,000 or so customers for months that the new tax law could result in lower refunds or year-end tax bills, urging them to be prepared and make adjustments to their withholding, if necessary.
Few have heeded the advice. So this year, preparers start each tax filing session by lowering expectations, Sandra Wilson said.
Customers still get upset over diminishing refunds, but so far, reactions have been muted and only one has stormed out.
"They take it better once they realize it's not as bad as it could be," she said. "Just tell them ahead of time -- don't surprise them at the end."