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Bigger checks or IOU to the IRS? Tax law leaves some Missoulians owing money

Posted at 2:53 PM, Feb 26, 2019
and last updated 2019-02-26 16:57:59-05

When Brenda Allington and her husband filed their tax returns this year, they expected some form of refund, not unlike those received in past years.

After all, the Missoula couple ensured state and federal taxes were withheld from their earnings and they followed the rules of the new Tax Cuts and Jobs Act passed by the Republican majority last year.

But like a growing number of Montanans who have already filed, Allington found that she and her husband will owe taxes this year. Others are facing reduced refunds.

“Even though our joint income dropped considerably, this is the first year we have owed taxes,” said Allington. “Almost $6,000 worth, no less.”

When pushing his legislation, President Donald Trump pledged a generous tax reduction. Some have seen their individual income taxes fall, resulting in bigger paychecks. The figure grows larger the more one earns, with the wealthiest Americans seeing the biggest savings.

But for low- and middle-income earners, or those now in retirement, the savings aren’t there. And according to the IRS, this year’s average refund has fallen 8.7 percent, from $2,135 in 2018 to less than $1,949 so far this year.

That frustrates Allington, who is now in retirement. She supplemented her husband’s earnings with income she had socked away in an IRA for the past 36 years. The couple received a small refund from the state, though it was far less than in years past.

But any income returned by the state was erased by the thousands of dollars Allington owes the IRS this year.

“I am well read enough to know that Trump’s tax cut was like every Republican tax cut based on trickle-down economics,” Allington said. “The only thing the responsible, middle-class workers get is the trickle of crumbs that fall from the tables of billionaires.”

According to IRS data compiled by CardRates, Montana taxpayers have received the smallest refunds this year of any state in the country, while neighboring Idaho ranked 46th. The data blames the state’s low median income for the diminished refunds.

At the same time, the wealthiest earners will pay less in taxes as a percent of their income under the new tax law. That includes Amazon, which through tax breaks and credits, is expected to receive a tax rebate of $129 million, according to the Institute on Taxation and Economic Policy.

Amazon doubled its profits from $5.6 billion in 2017 to to $11.2 billion in 2018.

“To add insult to injury, I heard on the morning news that Amazon will pay zero in taxes,” Allington said. “The richest company in the world based in the U.S. pays no taxes?”

Tax experts said changes brought by the Tax Cuts and Jobs Act have left many earners confused. While some saw bigger paychecks due to fewer withholdings, others are finding out they actually owe the IRS since not enough taxes were withheld.

The new tax law also eliminated many exemptions and cut many popular deductions. And while the average tax refund has fallen 8.7 percent so far this year, the total number of refunds issued is down nearly double at 16 percent.

A spokesperson for the Treasury Department said some people are seeing larger paychecks throughout the year instead of getting a tax refund at the end of it.

“Smaller refunds mean that people are withholding appropriately based on their tax liability, which is positive news for taxpayers,” the agency said.

 — Story by Martin Kidston – Missoula Current