The first batch of checks mailed from the Internal Revenue
Service this year showed the average tax refund climbed $97
compared to those issued at the same time last year, according to
figures released Friday.
By MARY DALRYMPLE
AP Tax Writer
The first batch of checks mailed from the Internal Revenue Service this year showed the average tax refund climbed $97 compared to those issued at the same time last year, according to figures released Friday.
Refunds mailed so far this year average $2,292, a 4.5 percent increase over refunds mailed at the same time in 2003. Tax refunds tend to be higher during the first weeks of the tax filing season, when taxpayers expecting checks hurry to file their returns.
“It’s significantly higher than it was a year ago, and that’s one of the tail winds pushing the economy forward during the first quarter,” said Sung Won Sohn, chief economist with Wells Fargo & Co., a banking company in Minneapolis.
Last week the Treasury Department said, “The president’s 2003 tax relief will increase refunds paid this spring by an average of $300.”
Treasury Department spokeswoman Tara Bradshaw on Friday clarified that figure, saying the average $300 increase compares this year’s expected refunds with projections of the refunds taxpayers would have gotten this year had last summer’s $330 billion tax cut not passed.
However, Eileen Pickel, franchisee of H and R Block in Gilroy, Morgan Hill and Hollister, said that hasn’t exactly been the case with returns in the South Valley.
“That is news to me,” said Pickel, whose three area offices will go through more than 5,200 tax returns this year . “Maybe people’s tax situations have changed a lot in the last year.”
Some economists monitoring the refunds said they expected a bigger increase than they’ve seen so far. The economists said they can’t fully account for the lower-than-expected refunds but cautioned that the numbers may quickly change.
“It does look like it’s a little light, but I think it’s just too early to tell,” said Joel Prakken, chairman of Macroeconomic Advisers LLC, a St. Louis forecasting firm. “I don’t have alarm bells going off.”
Prakken said taxpayers can expect to get between $40 billion and $50 billion returned this spring, the proceeds from reduced taxes on dividends and lower income tax rates enacted too late last year to be completely incorporated into paychecks. Whether the money comes in the form of bigger refunds or lower tax bills remains to be seen, he said. Other economists said refunds might be coming up smaller than they expected because of new tax complications, lower incomes and even lower interest rates.
“It may be that it’s taking people longer to file taxes because it’s still more complicated this year,” said Cynthia Latta, principle U.S. economist at Global Insight.
Pickel said there are hundreds of tax changes every year.
“A lot of people don’t know that, but a lot of them don’t necessarily affect them,” she said.
Some that do, however, are last summer’s dividend and capital gains tax cuts, which added complications to this year’s tax forms. Investors must sort out which dividends qualify for the lower tax rates and determine whether their capital gains must be taxed under the old system or the new rates.
Taxpayers might also be seeing lower interest rates taking a bite out of their tax deductions. Homeowners who took advantage of rock-bottom interest rates to refinance their home loans during the last several years might be taking smaller mortgage interest deductions.
“Those are the big ones that any people would feel,” Pickel said.
However, Pickel said there are several ways that people can receive deductions.
“People don’t know that if they dig a little deep that they can find something,” she said. “Everybody assumes, ‘I can’t do it, I can’t do it.’ ”
One of those is getting money back for standard mileage rates for employees who use their cars for work. Some companies do not pay the full federal rate of 36 cents per mile, and that the rest can be paid back through taxes.
“I was just talking to a building contractor, and he didn’t know he could get paid for the full mileage,” she said.
To help those who are confused by their tax return forms, or just want to have them double-checked, Pickel said her H and R Block offices will review tax forms at no cost.
“We check them for free to give them a piece of mind,” she said.
If changes need to be made, the company will charge.
“Those have typically been on the refund side,” Pickel said about the reviews of tax forms. “Last year, one of our preparers got a lady back $4,000 or $5,000. It was a mistake (she had been making) over four or five years.”
H and R blocks tax return services start at $55. The company also offers tax planning, tax preparation, handling tax questions and other services.
“It’s not just the tax return,” she said.
So when does it become a better idea to have an accountant do your taxes rather than doing it yourself?
According to Pickel, that just depends on how much time you value your time.
“(The tax forms) give an average time of how long it takes to understand it, and they give an average time of how long it takes to complete it,” she said. “Some of those can be pretty time consuming. It’s how much time you’re willing to put into it.”
H and R Block is located at 433-A First St. in Gilroy and at 15868 Monterey Road in Morgan Hill. For more information visit www.hrbolck.com
Assistant Editor Dave Steffenson contributed to this story.
