The 2019 tax season officially kicked off January 28, and 150 million tax returns are expected to be filed this year. While most filers will look forward to getting a refund, others might be worried that they’ll owe taxes to the IRS. Whether you can look forward to a refund is probably tied to where you live, according to the latest MagnifyMoney annual tax study (see 2018 results here). We analyzed IRS tax data for 100 of the largest U.S. metros over a five-year period (2013-2017) to find out where people owe the most taxes at the time they file their return — and where people are getting the biggest refunds.
Taxpayers are getting slightly smaller refunds while tax bills are increasing. On average, we found taxpayers in the 100 largest metros who owed taxes faced a federal tax bill of $5,307 when they filed, while those taxpayers who got a refund averaged $3,016. Compared to last year’s study, which reported an average tax bill of $5,294 and average refunds of $3,052 for returns filed 2012 to 2016.
Nearly one in five taxpayers owes Uncle Sam when he or she files. Among the 100 metros analyzed, 19% of taxpayers owed taxes and 77% got a refund. This shows a trend of more people owing taxes and fewer receiving refunds, as our previous study found 17% of city-dwelling residents owed taxes and 78% received refunds.
High tax bills could correlate to more itemized returns. As in last year’s study, an average of 33% of taxpayers itemized their taxes each year during the study period. But a greater proportion of filers itemized their returns in the 10 metros where taxpayers owed the most. In these cities, on average, 39% of filers itemized their taxes.
In San Francisco, the second-ranking metro with filers who owed the most, some 40% of taxpayers itemize. The exception was Sarasota, Fla. Although the 27% of taxpayers who itemize there was below the national average of 33%, the share of Sarasotans who owed taxes was greater than the national average (21% versus 19%).
Of course, with the 2018 tax reform changes, fewer people will likely itemize when they file taxes this year since the standard deduction was raised.
More people face tax bills in the West. Eight of the top 10 metros where taxpayers owed the IRS were located in the Western United States. California metros took three of the top spots. But Denver was in a three-way tie for second place along with Sacramento and San Diego, where 22% of taxpayers owed Uncle Sam in all three metros. However, Denver has slightly bigger problems, given the average taxpayer there owes more — $5,642 on average, compared with San Diego ($5,298) and Sacramento ($4,299).
San Francisco ranks high on the list among those who owe taxes. One in four San Francisco taxpayers owes taxes when he or she files, we found, with an average tax bill of $7,261. That’s about 37% greater than the national average. San Franciscans might pay a lot come tax season but they also take home the sixth-largest tax refund – $3,506 vs. the $3,058 national average.
Where taxpayers are getting the biggest refunds
Overall, tax refunds fell slightly from a $3,052 average in last year’s study to $3,016 this year.
While the 10 cities where taxpayers receive the largest refunds are the same year-over-year, however, refunds didn’t grow in every metro area. Tax refund amounts trended down in three Texas cities: McAllen, Houston, and Corpus Christi. San Francisco residents, on the other hand, saw the biggest increase in their tax refunds, getting back $40 more ($3,506 in this year’s study compared to $3,466 in last year’s study).
Where filers are most likely to owe taxes
When looking at the cities where more people ended up owing the IRS at the time of filing, not much has changed.
The average overall size of a tax bill in all top 100 metro areas jumped this year to $5,307 from $5,294. Similarly, the individual averages owed in each of these 10 cities went up. Boise, Idaho’s $120 jump in its average tax bill is the largest increase, dollar-for-dollar.
Higher tax bills correlate with larger tax refunds
A look at the average tax bills and refund amounts in each city reveals an interesting trend: higher tax bills are correlated positively with higher tax refunds.
In other words, the cities where people get fatter refund checks are also where filers who owe taxes will pay the most. The scatter plot below shows this relationship between high refunds and high tax bills.
Take Ft. Myers, Fla. as an example. This city has the largest tax refunds at $3,833 — but it also has the highest average tax bill of any city, at $8,194.
Tax year 2018 will bring big changes
This study highlights some big trends and differences in tax burdens by city, but it’s based on a past iteration of the American tax code. The Tax Cuts and Jobs Act made sweeping changes to the U.S. tax code that officially took effect for the 2018 tax year (which is outside the five-year period looked at in this study).
So the 2019 tax season is the first time taxpayers will file a return under this new tax code, and the rule changes will bring surprises to many. Only 5% of taxpayers are expected to see their tax costs increase, according to the Tax Policy Center. But confusion over how the tax changes impacted withholding calculations could mean that many taxpayers have already paid too much or too little in taxes.
The proportion of itemized returns is also likely to decrease this tax season. The tax code overhaul included nearly doubling the standard deduction. Since filers have the option to take a standard deduction or itemize their returns, a higher standard deduction is likely to incentivize more of them to do the latter. As a result, itemized tax returns are expected to decrease from 26.4% to just 10.9% among filers, according to the Tax Policy Center.
Tips for filing taxes in 2019
Because the new tax laws will bring many changes, you should expect the unexpected this tax season. And on top of these new changes, the recent federal government shutdown could impact IRS functions and return processing. Here’s what you can do to get ahead of these major tax changes when filing your 2018 return.
File as early as you can. With potential delays at the IRS, it’s even more important to do your part to get your tax refund as soon as you can. The best way to do this is to file as early as possible — don’t put it off until the April 15th deadline. As a bonus, filing early is also a smart way to protect yourself from tax refund theft. And if you end up owing, you’ll also have more time to gather the funds needed to settle your tax bill by the deadline.
Get familiar with new tax forms. The previous years’ tax forms 1040A and 1040EZ are gone, replaced by Form 1040. The new 1040 will be simpler for many tax filers, but not all. Many people will need to file additional schedules with their Form 1040 to adjust taxable income or claimed some tax credits. It’d be wise to review these new forms and changes ahead of completing your return so you know what to expect.
Expect your tax situation to change. With the major changes to the tax code and withholdings in the 2018 tax year, taxpayers should not expect filing to be business as usual. Your tax refund could be higher or lower than it has been in previous years, or you might wind up owing a tax bill. Take a second look at your finances and budget and make a plan for how you’ll manage if you don’t get your usual refund.
If you owe a tax bill, pay it. If you find that you owe a tax bill, pay it as soon as you can. You can file for an extension to give yourself more time to complete a return, but at least 90% of your tax bill will still be due by the April 15th deadline. If you underpay, you’ll owe another 0.5% of the outstanding balance for each month your tax bill goes unpaid.
Consider hiring a professional. With so many tax code changes to grapple with at once, preparing your own taxes could come with more headaches and complications than usual. It could be a good year to hire the help of an accountant or other tax professional. They can review your tax situation, ensure your tax return is prepared correctly and help you identify any potential credits or deductions you might have missed on your own.
Using IRS Statements of Income data, we aggregated the data for five years, for returns filed from Jan. 1, 2013 – Dec. 31, 2017 in the 100 largest U.S. metros.