Taxpayers slow to file as they grapple with Trump tax law

Many taxpayers are filing their taxes later this year than they have in the past, as they navigate the first filing season under President TrumpDonald John TrumpThorny part of obstruction of justice is proving intent, that's a job for Congress Obama condemns attacks in Sri Lanka as 'an attack on humanity' Schiff rips Conway's 'display of alternative facts' on Russian election interference MORE’s tax law.

“We’re a little behind where we’ll typically be,” Andy Phillips, a director at the Tax Institute at H&R Block, told The Hill.

Tax preparers said that some people may be nervous about filing their taxes this year because of worries they are getting a smaller refund. Preparers are also are spending more time on each return, to make sure clients fully understand how they are affected by the new law.

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Additionally, preparers expect that there will be an increase in people filing extensions this year — particularly business owners who qualify for a new deduction.

The IRS released data on Thursday finding that the number of tax returns the agency has received through March 15 is down by about 1.9 million, or 2.5 percent, compared to a similar point last year. 

A senior Treasury Department official predicted on Friday that the total number of returns filed by the April 15 filing deadline would be lower than last year, but was not certain.

Officials also noted that there are still a number of weeks left in the filing season and that weekly data can fluctuate.

But the slowdown so far is just another development in a tax season filled with uncertainty and complications.

Tax preparers and the Trump administration said there could be several reasons why fewer people have filed their returns so far this year.

The filing season started only days after a record 35-day government shutdown ended, and preparers said that taxpayers may have had questions at first about how the shutdown would impact the processing of tax returns.

Some preparers also said they think some taxpayers may be filing their returns later this year in light of reports of early IRS data showing smaller tax refunds.

“That press has demotivated people from rushing down and getting that big refund that they’re used to expecting,” said Jim Andrews, a certified public accountant (CPA) in Berkeley Heights, N.J.

In more recent weeks, the IRS data has shown refund sizes comparable with last year's, with the most recent batch of data showing the average refund through March 15 is $3 less than the average amount over a similar period last year. And most people are getting a tax cut, even if their refund amount decreased or they owe the IRS money.

Ultimately, whether someone is getting a bigger refund, a smaller refund or a balance due depends on their individual situation.

Phillips said that people are taking extra time this year to make sure they understand how they are affected by the new tax law before they submit their returns.

He said that taxpayers are doing more research or seeking help from professionals both when they are disappointed by the results, for example, owing a balance to the IRS, and when they are positively surprised, such as receiving a larger refund than in the past.

“When taxpayers have an outcome they didn’t expect, they take a little more time before they file,” Phillips said.

The senior Treasury Department official acknowledged that taxpayers are taking time to digest the new law, telling reporters Friday that “for some people there’s a lot to absorb in the tax-reform bill.”

Tax preparers are also taking more time to explain clients’ returns to them.

Geoff Harlow, vice chair of the Illinois CPA Society’s board of directors, said that preparers have been slow to begin working on clients filing individual returns because they took much longer preparing tax returns for business clients, who have an earlier due date.

“The amount of time we’re spending communicating with our individual tax clients is much greater,” he added.

For example, Harlow said that preparers are having to explain to some taxpayers who have always itemized their deductions in the past that they may be better off taking the standard deduction this year due to the law’s cap on the state and local tax deduction and its increase in the standard deduction.

“To some extent, we’re psychologists,” he said.

Some tax preparers are also predicting an increase in the number of taxpayers who will request extensions.

A survey conducted by the National Association of Enrolled Agents in mid-February found that 45 percent of respondents, who are federally credentialed tax practitioners, expect their businesses to see either some or a significant increase in the number of extensions.The senior Treasury official said that many tax preparers are encouraging their clients to file extensions in case relevant IRS guidance comes out between now and the Oct. 15 due date for extended tax returns.

Preparers predict that owners of noncorporate businesses known as “pass-throughs” are among those most likely to file an extension.

The tax law created a new 20-percent deduction for income from pass-through businesses, with the final regulations only coming out days before the filing season began.

Tax preparers say that filing an extension is not a bad thing and shouldn’t raise a taxpayers’ audit risk. They note that people still need to pay an estimate of what they owe by April 15 even if they seek an extension.

Once more taxpayers have filed their returns, the IRS will have more complete data about how refunds this year compared to refunds last year.

Individuals who expect to owe the IRS money rather than receiving a refund typically file toward the end of the filing season. At the same time, pass-through owners who have yet to file may have gotten sizable refunds.

“Refunds are impossible to predict because it’s totally dependent on what that person paid in, either in the form of withholding or estimated payments,” said Tony Nitti, a partner at RubinBrown in Aspen, Colo.