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Refund checks, and other “news” inspired by the IRS

Posted on Mar. 12, 2019

We welcome back guest blogger Bob Kamman. Today Bob delves into the “real-time” tax return statistics available during the filing season. Christine

You might remember February 27, 2019 as the day of a House committee hearing in Washington, or a summit meeting in Hanoi. But for millions of Americans, it was Jackpot Wednesday, when the Treasury made, in one day, seventeen percent of the Form 1040-related payments it will issue all filing season.

The news media have been fascinated more than usual this year by IRS refund checks. They simply disregard that in many cases they are not refunds, and in most cases they are not checks.

So let’s agree that when we read about “refund checks,” we know what the journalists and IRS itself mean are largely electronic deposits to individual bank accounts, often representing credits claimed by people who pay no federal income tax.

For actual taxpayers, 2019 refund amounts may be more or less than those of previous years because of changes both to tax law, and to the way that wage and pension withholding is calculated. There is anecdotal evidence, and nothing else, that many are receiving smaller amounts.

But for those whose annual budget relies on the earned income credit or the child tax credit, the annual concern is whether IRS will question eligibility and sequester payments until it is sure that there is no fraud or mistake involved. That’s why the February 27 mass payout of $45 billion was good news for the poor and for those who help them with tax procedure.

Last filing season, IRS paid out about $265 billion in “refunds” through April 20. IRS will tell you once a week, how many returns it had processed cumulatively through the previous week. But Treasury will tell you by this afternoon, how much tax money it collected and how much in IRS payouts it made yesterday; so far this month; and to date this fiscal year. The data can be found online in the Daily Treasury Statement.

There is a lag between when IRS counts a refund return, and when Treasury makes the payment. That’s why the IRS weekly report for Friday, February 22, showed a huge increase in refunds, while the Treasury report for February 22 still showed a lag. The following week’s $45-billion payout explained the IRS calculation.

Treasury does not report the number of payments, just the amount. So we must rely on IRS for the “average refund” figure, which answers the question: “Of those who get refunds, what is the average amount?” This figure does not attempt to answer the question: “Of those who file returns, how many owe nothing or must pay?”

However, the March 1, 2019 IRS report shows that the number of refunds was 81.6% of the total returns processed. This was down slightly from 82.1% in the comparable report from March 2, 2018. Half a percentage point is not that much unless you filed one of the 650,000 or so returns which that number represents. Elections have been decided by smaller margins.

IRS does not tell us, until much later this year or next, how many returns showed no tax owed. Nor does it report the average payment with balance-due returns. What we do know from the Daily Treasury Statement is how much money was deposited into its account at the Federal Reserve. (This number also includes employment taxes not paid through the “Federal Tax Deposit” system, but those are mostly from small employers.)

Through March 7, the total “individual income and employment taxes, not withheld” for the fiscal year that began October 1 was $125.3 billion. The comparable amount for the previous year was $123.7 billion. But keep in mind that IRS offers a “file now, pay later” option for electronic filers. Taxpayers can request the balance due be withdrawn from their account on a certain date – for example, April 15. Last year, tax returns were due on Tuesday, April 17. The one-day count on that date for this category was $28.1 billion. The next three days, the checks continued falling out of the envelopes: $11.6 billion on Wednesday, $11.8 billion on Thursday, and $15.2 billion on Friday.

While the weekly IRS reports shed little light on collections, they raise a couple of interesting questions about tax administration. For example:

1) Where have all the practitioners gone?

Through March 1, 2019, the returns prepared by tax professionals had dropped by 1.7 million, or 5.8%. Meanwhile, self-prepared returns had increased by about 371,000. Does this mean the new 1040 forms, and higher standard deduction, have made do-it-yourself an option for more people? Are improvements in commercial software responsible? Are more kitchen-table preparers just refusing to sign off on their work because of the Form 8867 “due diligence checklist” interrogatories?

2) Why did direct-deposit become so popular?

Last year, about 84% of refunds were deposited directly to taxpayer accounts. So far this year, the rate is about 93%. Do Americans trust the financial-services industry more, or the Post Office less?

The Daily Treasury Statement provides some interesting information about tax-related issues, as well. For example:

  • Customs “and certain excise taxes” collected for the fiscal year through March 7 were $35.3 billion, up from $20.3 billion for the same period last year. What could the Treasury do with an extra $15 billion? Well, corporation income tax FTD receipts were down from $94.1 billion to $73.5 billion.
  • FTD’s for “withheld income and employment taxes” are holding steady at $1.108 trillion through March 7, about the same as $1.120 trillion last year.
  • The “Treasury Offset Program” collected nearly $3 million in February from tax refunds that would otherwise have been paid to people who owe federal, state or child-support debts. The amount for February 2018 was $2.4 million.
  • Social Security benefit payments increased from $72.35 billion in February 2018 to $76.83 billion in February 2019. Some of that 6.2% growth can be explained by the 2.8% “cost of living adjustment” this year.
  • “Business” tax refunds so far this fiscal year total $28.9 million, and more than half of them were paid by check, not direct deposit. The comparable amount for FY 2018 is $35.4 million.

How reliable are any of these reports? My confidence was somewhat shaken by the Daily Treasury Statement for Friday, March 8, which showed a negative $32 million for “IRS Tax Refunds Individual (EFT).” A footnote explained, “reported as a negative amount due to a return/reversal of $32 million.”

Well, I suppose if some economists can advocate a negative income tax, others can support a negative income tax refund.

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