Morgan Stanley has conducted research that reveals Americans will be paying much less in 2021, as a result of the tax reform bill passed by the GOP. Taxpayers are only just starting to reap the benefits.
The research conducted by Morgan Stanley reveals that Americans are withholding too much from their paychecks. The bank predicts that refunds in 2021 will be 26% greater in value than they were in 2020.
You can use this free tax refund estimator to see how much your tax refund will be.
In dollar terms, this would represent a $62 billion increase from the $235 billion issued in refunds in April of this year.
Americans have a habit of being conservative and slow when it comes to reacting to changes to the tax system. Morgan Stanley says that it’s common for the average American worker to not change their withholding rate significantly during the first year of a new tax bill.
Part of the reason for this is that businesses, accountants, and individual taxpayers typically wait for the IRS to issue guidance before deciding. Furthermore, most people would rather have a larger tax refund than a surprisingly big tax bill.
It’s expected that the rise in refunds will contribute to more lucrative savings accounts and a boost in retail sales, come the first quarter of 2021.
Morgan Stanley cited several figures in its release. It said that 65% of consumers were planning on putting their refunds into savings accounts. 35% of taxpayers were going to use tax refunds to reduce debt, but only 5% said they would use their refunds to make a big-ticket purchase.
There are questions hanging over the national debt, however. The money for increased tax refunds must come from somewhere, so there are concerns that this increase won’t comfortably fit into the current debt ceiling.
Back in 2017, the issuing of T-bills had to be reduced just to handle the number of refunds. In this case, however, the current cash balance of the Treasury should be enough to cover the increase in tax refunds.
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How to Get the Biggest Tax Refund
When you file your taxes online, they help you get your biggest refund by asking you simple questions, showing you which tax credits and deductions you qualify for and recommending the best choices for maximizing your refund. Try their free tax refund calculator to see how big your refund will be.