– Households with Incomes Over $100,000 Surprised by Larger
Tax Bill –
– Debt Reduction Remains a High Priority Among Filers –
DENVER–(BUSINESS WIRE)–Janus Henderson Investors released today the results of its proprietary
2018 Income Tax Study. The firm undertook the survey of 1,002 U.S.
adults during the week of March 25-29, 2019 to gauge perceptions and
attitudes regarding the 2017 Tax Cuts and Jobs Act and its impact on
2018 individual tax returns.
Matthew Sommer, Senior Managing Director Strategy Group, Defined
Contribution and Wealth Advisor Services at Janus Henderson, discusses
“After hearing mixed feedback from our advisors and clients regarding
the impact of the 2017 Tax Cuts and Jobs Act, we decided to gather
feedback directly from taxpayers.”
“The data confirmed what we had been hearing in qualitative feedback,
which is that higher income tax payers ended up paying more in taxes
than they expected.”
“In addition, filers were uninformed about the tax changes, which we
believe presents an opportunity for financial advisors to be more
proactive in helping clients understand the new tax law and individual
The five key findings specific to respondents
Tax liability expectations were met, but disappointment reigns among
higher income households. Across the entire sample representative of
the U.S. population, respondents’ 2018 total tax liability was on par
with their expectations. In fact, when asked to consider both amounts
paid throughout the course of the year in addition to any outstanding
liability or refund, 32% expected to pay more than 2017 but 30% actually
incurred a larger tax bill than in the previous year.
Households with incomes above $100,000, are likely to be disappointed
with their situation. Among this subsample of 254 respondents, 42%
actually paid more in 2018, while only 36% expected to incur a larger
liability. On the other hand, 19% paid less compared to 28% who thought
their 2018 liability would have, in fact, been lower. These
discrepancies are most likely due, at least in part, to the new $10,000
limitation on state and local taxes. While all taxpayers benefit from
five of the seven marginal rates being reduced, higher income households
with substantial property and state income tax liabilities may find that
the lower rates are not enough to offset the new restrictions applied to
their itemized deductions.
Consumers are uninformed about the new tax law. Despite being
over one year removed from the passage the 2017 Tax Cuts and Jobs Act,
many consumers remain in the dark about the new tax law. When asked “How
familiar are you with the 2017 Tax Cuts and Job Act?” on a scale of one
(not familiar at all) to five (very familiar), the average mean score
was 2.05. An additional question asked respondents how much they would
be able to deduct if their property tax was $4,000 and their state tax
was $8,000. Only 10% correctly answered $10,000.
Professionals could be more proactive. Use of an outside
professional was more prominent among higher income households, but
surprisingly some CPAs and advisors were not proactive about the new tax
law. Of higher income households who have a CPA or financial advisor,
roughly 22% and 42%, respectively, said their professionals did not
provide information to help them make the most of the new tax
legislation. This deficiency is an important gap for CPAs and advisors
to close, while perhaps serving as an impetus for individuals to
reconsider their service providers.
Cash is king when settling up with the IRS. Among higher income
households with an outstanding tax liability, more than half (56%) will
withdraw money from a checking or savings account to cover the balance.
For households with income less than $100,000 and who are receiving a
refund, 38% plan to save the money while 23% will spend it.
Reducing debt is a top priority in 2019. Across the entire
sample, when asked to choose from a list of common financial priorities,
reducing debt was most often selected (22%). The other top priority for
2019 is to establish an emergency fund (15%). Interestingly, these
choices were also the top selections by higher income households. These
results are a good reminder that a solid financial plan is much more
than simply asset allocation or investment selection.
Tax information contained herein is not intended or written to be
used, and it cannot be used by taxpayers for the purposes of avoiding
penalties that may be imposed on taxpayers. Such tax information and any
estate planning information is general in nature, is provided for
informational and educational purposes only, and should not be construed
as legal or tax advice.
About Janus Henderson
Janus Henderson Group (JHG) is a leading global active asset manager
dedicated to helping investors achieve long-term financial goals through
a broad range of investment solutions, including equities, fixed income,
quantitative equities, multi-asset and alternative asset class
Janus Henderson has approximately US$329 billion in assets under
management (at 31 December 2018), more than 2,000 employees, and offices
in 28 cities worldwide. Headquartered in London, the company is listed
on the New York Stock Exchange (NYSE) and the Australian Securities