COLUMBIA, Md. (April 18, 2019)—For some taxpayers in Democratic states like Maryland with high state personal income taxes, the federal tax changes in 2018 have produced lower refunds on their state and federal tax returns.
This is because the federal law placed a $10,000 ceiling on itemized deductions for personal taxes, and raised the standard deduction to $24,000 on a joint return, making that more beneficial for most.
Last year, Maryland legislators refused to change Maryland's tax law that does not allow itemized deductions on the state return if itemized deductions were not used on the federal return, as Gov. Larry Hogan had proposed. Instead, they too raised Maryland's standard reduction for most taxpayers.
Allowing itemized deductions would have reduced Maryland revenues too much, legislators argued. Instead they set aside $200 million in additional revenues generated by the federal tax changes to begin funding the Kirwan education commission recommendations.
Overriding Turbo Tax
In the case of my own tax return, I found that I had to tell the Turbo Tax application I use to prepare my returns to use itemized deductions rather than the new higher standard deduction the software preferred. This raised the amount of taxes we owed the IRS, but substantially increased our state refund, for a net gain of $300.
This was one of the many potential complications of the new law. These included changed withholding tables from the IRS which increased paychecks throughout 2018, but ended up reducing expected refunds.
Data released last week by H&R Block, the tax preparer, confirmed the negative impact of the federal tax changes on taxpayers in Maryland and other blue states, based on millions of tax returns filed through March 31.
The average federal income tax for Maryland taxpayers was down 21%, but the national average was down 25%, with taxpayers in most states getting greater tax cuts.
Federal refunds for Marylanders were down 6%, among the greatest reductions in the nation. Taxpayers in most state saw their federal refunds increase slightly.
Taxpayers in only four states and the District of Columbia got less benefit than in Maryland from the federal tax cuts, according to H&R block.
According to figures from the Maryland Comptroller's office, through last week they've issued 1,374,326 refunds with an average refund of $965, down $69 (6.6%) from this time last year.
As of Monday morning, the comptroller's office had processed 2,340,927 returns (more than 92% electronically), compared to 2,230,559 this time last year, 110,000 or 5% more.
And yes, we filed electronically and got our state refund into our bank account in three days. It was $900 less than last year.