Tax day: Five things to watch

Tax day: Five things to watch
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Tuesday marks the deadline for taxpayers to file their 2017 tax returns, the last time people will file their returns under the old tax code.

The agency expects to receive about 155 million individual tax returns this year, including extensions. The IRS said that through April 6 it had processed 101 million returns and issued more than $200 billion in refunds.

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Policymakers will be looking to see how this year’s filing season compares to next year’s, when tax returns will reflect most of the changes Republicans made to the tax code in a law passed in December.

Here are five things to watch as the filing season comes to a close.

How many people will see refunds?

Typically, more than 70 percent of taxpayers receive tax refunds. As of April 6, more than 79 million returns filed have claimed refunds, with an average amount of more than $2,800.

In January, the Treasury Department and the IRS issued new guidance on tax withholding from paychecks under the Republican tax law. The agencies said the guidance should result in about the same percentage of people receiving refunds next year as have in the past.

However, Democrats are concerned that many people may get smaller refunds than they expect, or that some expecting to get refunds will end up owing the IRS money instead. 

Several Democrats have questioned whether there was political pressure on the IRS to design the tables to withhold not enough money so that people would see larger paycheck increases ahead of the midterm elections. Treasury Secretary Steven MnuchinSteven Terner MnuchinMnuchin to lead delegation to embassy opening in Jerusalem: report Trump administration backing more funding for World Bank: report Mnuchin considering trip to China MORE has flatly denied that any interference occurred.

The Treasury Inspector General for Tax Administration said in a report rolled out Monday that the IRS took “adequate steps” to create the new withholding guidance. The watchdog also said the calculator the IRS developed to allow people to check the accuracy of their withholding may suggest in certain circumstances that people have more taxes withheld than is necessary.

How much tax revenue will come in?

The Congressional Budget Office (CBO) said the federal government received almost $1.6 trillion in individual income tax receipts for fiscal 2017, which ended Sept. 30.

For fiscal 2018, the CBO estimates that individual income tax revenue will increase by 3 percent. The CBO’s 2018 figure includes 2017 taxes paid in fiscal 2018 as well as federal income tax withheld during the current fiscal year, so the numbers partially reflect the new law.

The CBO estimates that individual income taxes as a percentage of gross domestic product (GDP) will fall from 8.3 percent to 8.2 percent from fiscal 2017 to fiscal 2018, as a result of tax law changes.

The budget office estimates that the ratio of individual income taxes to GDP will increase to 9.8 percent over a decade. Much of the increase would occur after the new tax law’s cuts for individuals expire, which is set to happen at the end of 2025. President TrumpDonald John TrumpGingrich: Trump ‘mishandled’ Rosenstein memo on Comey Trump to gift Macron framed upholstery: report Former presidents, first ladies come together to honor Barbara Bush MORE and congressional Republicans have called for making those tax cuts permanent as part of a “phase two” of tax reform.

Are rich people paying most of the taxes?

The Joint Committee on Taxation (JCT) has estimated that for 2017, those with income of at least $200,000 will pay 70.7 percent of all individual income taxes.

For the 2018 tax year, when the new tax code is in effect, high earners are projected to pay less in taxes but will pay a greater share of the total amount. Those with income over $200,000 will pay about 75.3 percent of all individual income taxes, according to the committee. 

The share of high earners’ income is also expected to increase from 2017 to 2018 — from 35.2 percent to 36.4 percent — but isn’t expected to increase by as much as the share of taxes paid by high earners.

Scott Greenberg, a senior analyst at the right-leaning Tax Foundation, said that by one measure, the tax code would be more progressive under the new law. A tax code is considered progressive if people pay a greater share of their income in taxes as they go up the income scale.

But Michael Linden, a fellow at the left-leaning Roosevelt Institute, said he wouldn’t consider the new tax code to be more progressive than the old one. He noted that the committee’s tables didn’t take into account any tax increases or spending cuts that Congress might enact to pay for the tax cuts.

What percentage of people will pay no income taxes?

The Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, estimated in 2016 that for the 2017 tax year, 76.6 million households, or 43.9 percent, would have zero or negative income tax. Taxpayers can have negative income tax if they receive refundable tax credits such as the earned income tax credit or the child tax credit.

The group estimates that the number of households that will not have to pay any income taxes will go up under the new tax law. For 2018, 80.6 million households, or 45.8 percent, will have zero or negative income tax, the group estimates.

Joseph Rosenberg, a senior research associate at the Tax Policy Center, said the projected increase in households with no income tax is largely due to the new tax law’s increases in the standard deduction and child tax credit.

“The larger standard deduction, as well as the child credit, will tend to reduce liability for people close to the zero point,” he said.

How has the IRS been handling taxpayers’ phone calls?

The IRS has seen an improvement in recent years in the percentage of callers seeking to talk to an IRS representative who are able to get one on the line. Acting IRS Commissioner David Kautter said the agency expects the level of service to be about 80 percent for this year’s filing season.

The level of service was 70 percent in the 2016 filing season and 75 percent in the 2017 filing season.

Taxpayers may have lots of questions for the IRS next year, when they file their taxes under the new code for the first time.
However, Trump’s proposed budget for fiscal 2019, which starts Oct. 1, calls for a reduction in funding for taxpayer services. This has drawn criticism from lawmakers in both parties.