Study: Where Do Taxpayers Get the Biggest Tax Refunds?

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Updated on Monday, April 27, 2020

Tax refunds may be more important than ever this year for many Americans, as the incomes of millions are disrupted by the COVID-19 pandemic. Although the Internal Revenue Service (IRS) has extended the filing deadline to July 15 as one of many federal responses to the coronavirus pandemic, ultimately more than 155 million Americans will file their 2019 federal tax returns this year. Of those households, more than 111 million will receive a refund.

There’s a wide disparity in both the likelihood of receiving a refund and the average refund amount among major American cities though. Using recent local-level data from the IRS, MagnifyMoney analyzed individual tax data of 157 of the largest U.S. metro areas to find out where people get the biggest tax refunds, as well as where people are most likely to receive a refund.

Key findings

  • Our study found that taxpayers in the 157 largest U.S. metro areas had an average federal tax bill of $5,903 when they filed in 2018.
  • Taxpayers in those same 157 metro areas who overpaid in 2018 received an average refund of $2,955.
  • Among the metros we analyzed, 21% of taxpayers owed money after filing in 2018, while 75% received a refund.
  • Six of the top 10 metro areas, as measured by largest average tax refund, were in the state of Texas in 2018. Filers in Midland, Texas, which was the metro with the largest refund in the U.S., received an average tax refund of $3,800.
  • You’re more likely to owe taxes if you itemize. Overall, 33% of taxpayers itemized their taxes in 2018, but in the top 10 metro areas where taxpayers were most likely to owe taxes at filing, 39% itemized their taxes. In San Francisco, the metro area with the largest percentage of filers who ended up owing, 43% of taxpayers itemize.
  • Eight of the top 10 metros where taxpayers owed the IRS most were in the West. The other two were in Florida — in North Port and Cape Coral.
  • The metro area with the highest average tax bill is Midland, Texas. Although only 16.9% of filers in Midland owed when they filed taxes in 2018, the average tax bill among those filers was $11,353 — nearly twice the national average of $5,903.
  • Refunds as a percentage of income are highest in metro areas with lower incomes. The average net refund in these metro areas can be as much as 6.6% of average income, compared with the national average of 1.3%. Most of these metro areas have average adjusted gross incomes (AGIs) under $50,000, which is much lower than the national average of $78,058 in 2018.

Where taxpayers are getting the biggest refunds

Nationwide, the average tax refund in 2018 was $2,955, which is 5% lower than the average refund of $3,120 in 2017. These figures include about 111 million filers across 157 metro areas, which represent nearly 75% of all single and joint taxpayers. In 2018, 74.9% of these filers received a federal tax refund, down from 75.9% of files in 2017.

Metro areas in states with no state income tax are more likely to be the places where refunds are larger. Of the 10 metros with the largest refunds, eight were in Texas and Florida, neither of which have state tax on personal income.

Where filers are most likely to owe taxes

Fewer taxpayers owe when they file, but when they do, the average amount due to the IRS is higher than the average refund. In 2018, the average amount owed at filing was $5,903, which was 8% higher than the average of $5,464 owed in 2017. About 20.7% of filers in these metro areas ended up owing taxes in 2018, up from 19.5% in 2017.

Metros in the Pacific and Mountain time zones represent eight of the 10 places where taxpayers tend to owe. The two exceptions, North Port and Cape Coral, are wealthier Florida enclaves where many residents pay taxes on interest income.

As in prior tax seasons, places where the average incomes are higher will not only pay more in taxes, but will also be more likely to owe federal taxes when it’s time to file. The average AGI among the 10 metros most likely to owe was $102,693 in 2018 — well above the average AGI of $78,058.

Refunds account for larger portion of take-home pay in places with lower incomes

In cities where incomes are lower than the national average, refunds aren’t appreciably lower. The average refund recipient in these metro areas may get a refund equivalent to 5% or more of their annual income, which is significantly higher than the national average of 1.3%. In the 10 cities with the largest refunds as a percentage of annual income, nine had average incomes of less than $50,000 — significantly below the national average income of $78,058.

These refunds may often result in an annual economic stimulus in the local economies of these metro areas, as lower income households tend to consume a higher percentage of their incomes than wealthier households.

How 2017 tax reform may impact future refunds in some metros

As we begin to see preliminary data about the impact from changes made by the Tax Cut and Jobs Act of 2017, one of the most prominent pieces of info is the number of filers who itemized deductions. Last year, only 19 million filers itemized their taxes, down from 46 million in 2018. This is because for many filers, the standard deduction, which was nearly doubled, is now more advantageous than itemizing deductions.

Local level data won’t be available until later in 2020, but based on the most recent metro data, we can identify 9 metros with the highest percentage of itemizers and the highest adjusted gross incomes (AGI).

In general, we’ll likely see that filers in these metro areas will have fewer refunds and more and higher federal tax bills than in prior tax years. That’s because for most of these earners, the mortgage interest and local tax deductions were the reasons that made itemizing deductions advantageous. Now, that deduction is effectively capped at $10,000 per tax year. While these filers may still itemize, they won’t realize as large of a tax deduction as they did prior to the tax overhaul. If you need tax advice you might benefit from asking a financial advisor.

Should you wait until July 15 to file?

Most taxpayers expecting a refund would benefit by filing sooner than later. If you believe you’re likely to owe taxes, however, deferring filing federal income tax payments to July 15 won’t result in extra interest or penalty, regardless of the amount owed.

Just make sure that your state doesn’t require tax to be filed prior to July 15. While most states assessing a state income tax have also extended their deadline to July 15, it’s important to double-check that the state income tax filing deadline has been extended, and that interest and penalties are being waived. Usually, state income tax filings are a function of an individual federal tax filing.

How filing may affect your COVID-19 stimulus check

When deciding whether to file your taxes sooner or later, you may also want to consider the stimulus checks the government is sending to taxpayers as part of the coronavirus stimulus package.

There are some cases in which you might receive a larger stimulus check by waiting until July to file. For instance, if you were a single status filer in 2018 with an AGI of less than $75,000, and your AGI is greater than $75,000 this year, then postponing your filing until you receive stimulus funds may be advantageous.

Similarly, there may be cases where you may want to file as soon as possible if your income declined in 2019. If a single filer’s AGI was greater than $99,000 in 2018, and is less than $99,000 this year, then the filer’s stimulus funds may be based on those higher 2018 earnings.

Regardless, as the stimulus check is technically an advance of a refundable credit on income eligible taxpayers earn in 2020, any shortfall can be remedied when you file 2020 income tax. You’ll just have to wait longer for those funds.

Methodology

Using IRS Statistics of Income data, we compared aggregate and metro-level data of 157 metro areas to determine the average amounts of tax refunds by metro area, as well as the average amounts owed at filing, for returns filed from Jan. 1, 2017 to Dec. 31, 2018.