Every day the media is talking about the reduction of refunds, and blaming it on the new tax law. What the majority of people do not understand is that there are two elements to this argument.
First is your total federal tax. If your income is fairly stable year over year, just by looking at your total federal tax (line 15 on the new 1040) and comparing it to 2017, you’ll be able to tell if the changes have worked in your favor or not.
The second element to this discussion is your withholding. Back in January and February of 2018, the Internal Revenue Service reduced the tables used to calculate how much income tax should be withheld from each of your paychecks. Therefore, if you experienced the same income in 2018 as you did in 2017, you will see less total withholding reported on your W-2. In a lot of cases, we have even seen modest increases of W-2 wages of $2,000 to $5,000 (most likely due to an annual raise) but less overall federal income tax withholdings than the year prior. If you are unhappy with the outcome of your 2018 taxes, now is the time to adjust your withholding.
At the Maryland state level, we project an average increase of $600 in Maryland tax, which will reduce state refunds, or in some cases cause Maryland residents to pay. This is primarily due to Maryland not allowing itemized deductions if you do not itemize on the Federal return. However, there is a work around if you elect the itemized deduction on the federal side (see our previous blog post).
Now that Maryland representatives are in session, it is time to contact them and encourage that Maryland should de-couple from Federal law, and allow itemized deductions. Many other provisions of Maryland tax law do allow de-coupling from federal law, so why not with itemized deductions?