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5 Early Warning Signs From Tax Reform's First Year

Dan Caplinger, The Motley Fool

Millions of Americans have looked forward to potential tax savings from the reform efforts that took effect at the beginning of 2018. This tax season is the first chance to see the impact on tax bills from the new laws, and many have hoped that they'd see larger refunds and easier tax preparation as a result.

It's still early in the season, but so far, those hopes haven't yet materialized. Instead, many of the figures the Internal Revenue Service has released indicate that tax reform hasn't yet delivered on its promises. Let's go into the details to see whether taxpayers should worry.

Metal gears interlaced, with words Tax Reform engraved in the side of one.

Image source: Getty Images.

1. Fewer people have filed returns

Many fewer taxpayers have sent in their returns to the IRS during the 2019 tax season than did so at this point in 2018's tax season. This year as of early February, the IRS had received about 28.8 million returns, down 7% from year-ago levels. Most of those returns -- 27.6 million -- were electronically filed .

Those who use tax professionals to help them in their preparation were particularly likely to have delayed their filings this year compared with past years. Only 11 million returns had been electronically filed through tax professionals, down more than 1.5 million from figures from 2018's tax season. About half a million fewer people had filed their own self-prepared returns for electronic filing, coming in at 16.6 million. That suggests that the simplest returns are still getting in without much delay, but those who need help are having a tougher time getting it.

2. Return processing is slower

The IRS reported an even bigger drop in the number of returns processed so far this tax season. The service had gotten fewer than 27 million returns processed as of early February. That compares with more than 30 million processed returns during the 2018 tax season.

The government shutdown came at a particularly difficult time for IRS employees, and that might have contributed to the sluggish start to the tax season. Nevertheless, workers at the tax agency will face an uphill battle from now until mid-April because of the situation, and that will only add to what's already considerable stress levels within the IRS.

3. Fewer people are seeking help

The IRS maintains an extremely useful website that has a host of resources for taxpayers to use. The IRS.gov website has everything from simple apps to tell you whether you even need to file a return to detailed tools and instructions on every detail of the tax laws, and traditionally, people have used the website extensively to make sure they're taking advantage of every way they can cut their tax bills.

Use of the IRS.gov website so far in 2019 is down about 7% from 2018 levels. The 106.4 million visits is still a big number, but almost 8 million fewer visits means that people aren't using the site as much to get help and information.

4. Fewer people have gotten refunds

The most attention the IRS has gotten surrounds refunds. There haven't been as many refunds issued this year as there were last year. In 2018, about 13.5 million refunds had been issued by early February. This year, that number's less than 11.4 million.

Similar declines show up for those refunds that are directly deposited into bank accounts. With 15% to 16% fewer refunds, many taxpayers will either have to wait longer or not get a refund at all.

5. Typical tax refunds are smaller

In addition to fewer refunds so far, those who do have money coming back have seen their refund amounts shrink . The average refund is down almost 9% to $1,949, and that's almost $200 less per return.

The net impact has been a 23% cut in refunds paid to $22.18 billion. That's $6.7 billion less than was paid out by this time last year, and some economists predict that high-ticket item consumer sales could suffer because of the smaller refunds.

Keep an eye on tax season

There's a possibility that these numbers will get better as tax season progresses. However, given the particularly complex nature of tax reform, taxpayers need to expect some special obstacles they're not used to seeing. That warrants getting started on your taxes as soon as you can rather than waiting until the last minute.

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