The Surprising Winners and Losers of This Year’s Tax Season

By Ben Steverman and Marie Patino

Filing your taxes this year might feel like playing a game of chance.

Most Americans owe less to the Internal Revenue Service overall, thanks to the tax law signed by President Donald Trump in 2017. But tax reform also introduced a bewildering array of new rules that can have unpredictable and contradictory effects. The size of your tax cut—or increase—can depend on factors like where you live, what you do for a living and how many children you have.

Even the clear winners under tax reform might be disappointed by the size of their refund checks, because the IRS also lowered how much was withheld from paychecks throughout the year. Most taxpayers won’t know their fates until they sit down with a tax pro or filing software.

To help clear up at least some of the confusion, Bloomberg News teamed up with the Tax Institute at H&R Block. We analyzed the situations of five pairs of taxpayers up and down the income spectrum, to show how both refunds and total tax bills can rise or fall based on surprising details.

A Paltry Windfall for the Poor

While federal tax rates drop for almost everyone, that leaves out one group of Americans—people who are too poor to pay any federal income taxes at all. The U.S.’s progressive tax code generally doesn’t require lower-income Americans to pay anything other than payroll taxes for Social Security and Medicare. For decades, many poor Americans have also been eligible for the earned income tax credit, or EITC, which supplements earnings at tax time.

The tax law does include at least one perk for poor households, a doubling of the tax credit for children under 17 years old. But these examples show how little the poorest families can benefit from that change.

Children under 17 are eligible for the new $2,000 tax credit, of which $1,400 is supposed to be refundable even if you have no other tax liability.
In the fine print, however, Congress placed a limit on the credit to 15 percent of taxable income over $2,500. As a result, this family, whose children are young enough to be eligible, only gets an extra $75 benefit from the larger tax credit.
Both families do get a larger refund in 2019, but that’s due to an automatic inflation adjustment to the EITC program, not to tax reform.
In the first year of tax reform, the Tax Policy Center estimates just 1 percent of the law’s benefits accrue to Americans earning less than $25,000. Making up about a fifth of taxpayers, their average 2018 tax cut is $60.

The Independent Contractor Advantage

For employees—those who get a W-2 form—the tax law may contain an unwelcome surprise. They can no longer deduct unreimbursed work-related expenses, from union dues to travel costs and the home office deduction.

These two Colorado salespeople earn the same amount, $70,000, and incur the same $15,000 in mileage expenses.
One, however, is an employee losing the right to deduct his travel costs.
The other salesperson, an independent contractor, can continue deducting travel costs.
She also lowers her taxes with a new, controversial benefit for business owners called the “pass-through deduction.”
A higher standard deduction eases some of the employee’s tax pain. The lost mileage deduction still boosts his tax bill $500 and erases his refund. The contractor—unaffected by the new IRS withholding tables—goes from owing money to receiving a refund.
Tax reform makes becoming an independent contractor, rather than an employee, much more attractive. New IRS rules are designed to prevent employees from switching to contractors just to get these juicier tax perks.

Midwestern Bonus

Under the old tax code, taxpayers could deduct their state and local taxes, known as SALT, at tax time. The new law caps the SALT deduction at $10,000 per household, penalizing Americans in higher-tax areas.

Here are two similar families who live in states, Missouri and California, with very different tax systems and real estate markets.
In these cases, California actually levies lower income taxes than Missouri does. (Only the wealthiest Californians pay the highest rates there.)
Still, the California family gets hit hardest by the SALT limits because, living in a very expensive real estate market, they pay much higher property taxes than the Missouri family.
The Missouri family also gets a benefit that has nothing to do with geography: they’re eligible for the full child tax credit. The California couples’ children, while still living at home, are over 16 and don’t qualify.
For these Californians, the main problem is not the state income taxes but the expensive coastal real estate market, says Nathan Rigney, lead tax research analyst at the Tax Institute at H&R Block. “You have to pay more to live there.”

An Affluent Windfall

While the SALT limits get a lot of attention, there’s still plenty of good news for affluent taxpayers. Tax reform all but repeals the alternative minimum tax, or AMT, a complicated provision that effectively limited the deductions of upper-income earners.

Though Connecticut has some of the highest income tax rates in the U.S., here are two families living there who win under the new law. Pain from the SALT limit is made up for by AMT changes, which erase more than $9,000 in federal taxes for each.
The first couple are employees, so they pay higher rates on ordinary income. The other taxpayers are self-employed investors, qualifying them for both lower rates on most investment income, which weren’t changed by tax reform, and the new pass-through deduction.
The wage-earning family got its tax cut during the year, as employers withheld less from paychecks. Their refund is much smaller. The self-employed family didn’t adjust withholdings, so they’re now getting a big refund check.
Another win from tax reform for these families: despite their high incomes, both can now take the full $2,000-per-child tax credit.

A Tiny Tax Hike

Tax reform delivers many benefits to the wealthiest Americans. The rich, who are likeliest to be corporate shareholders, can celebrate the slashing of the tax rate on corporations, from 35 percent to 21 percent. They also get a doubling in the amount of wealth exempt from estate and gift taxes. Those perks don’t guarantee rich Americans will feel better when their individual taxes are due on April 15th, however. Here are two New York millionaires facing tax increases.

The main culprit for both their tax increases is the new SALT limit. Each family pays $970,000 a year in property and state income taxes, and can only deduct $10,000.
The couples end up with very different tax bills. That’s because the first couple works for a living, as executives paying the highest federal rate, now 37 percent.
The second lives off a big investment portfolio, paying much lower rates on long-term capital gains and qualified dividends.
Despite losing a huge SALT deduction, they benefit from other aspects of tax reform, like lower rates and the AMT change. In the end, the executives’ tax bill rises just 0.17 percent, while the investors pay 1 percent more.

Refunds are less relevant for this elite group of taxpayers, because they almost always have accountants who manage their withholdings throughout the year.

All the Taxes

Here are the detailed tax bills of the ten families, in the five case scenarios.

Taxes Family 1 2017 Family 1 2018 Family 2 2017 Family 2 2018
Wages $20k $20k $20k $20k
Standard deductions $9.4k $18k $9.4k $18k
Personal exemptions $16k ____ $16k ____
Taxable income ____ $2.0k ____ $2.0k





Tax before nonrefundable credits ____ $200 ____ $200
Child tax credit ____ $200 ____ ____
Other dependent credit ____ ____ ____ $200
Tax before refundable credits ____ ____ ____ ____
Additional child tax credit $2.6k $2.6k ____ ____
Earned income credit $6.0k $6.1k $6.0k $6.1k
Refund $8.5k $8.8k $6.0k $6.1k
State tax $0.0 $0.0 $0.0 $0.0
Taxes Family 1 2017 Family 1 2018 Family 2 2017 Family 2 2018
Wages $70k $70k $70k $70k
Self-employment income ____ ____ $55k $55k
Self-employment deductions ____ ____ $3.9k $3.9k
Adjusted gross income $70k $70k $51k $51k
Standard deduction or itemized $16k $12k $6.4k $12k
Personal exemptions $4.1k ____ $4.1k ____
Qualified business income deduction ____ ____ ____ $7.8k
Taxable income $50k $58k $41k $31k





Federal tax liability $8.2k $8.7k $5.9k $3.6k
Self-employment tax ____ ____ $7.8k $7.8k
Total federal tax liability $8.2k $8.7k $5.9k $3.6k
Witholding $11k $8.7k $12k $12k
Refund $2.4k -$5.0 -$1.7k $670
Taxes Family 1 2017 Family 1 2018 Family 2 2017 Family 2 2018
Wages $150k $150k $150k $150k
Standard deduction or itemized $24k $24k $49k $41k
Personal exemptions $20k ____ $20k ____
Taxable income $110k $130k $81k $110k





Federal tax liability $18k $20k $12k $16k
Child tax credit or other dependent credit $1.0k $6.0k $15k ____
Total federal tax liability $17k $14k $12k $14k
Witholding $17k $13k $17k $13k
Refund -$320 -$390 $5.0k -$1.1k
Taxes Family 1 2017 Family 1 2018 Family 2 2017 Family 2 2018
Wages $350k $350k ____ ____
Self-employment income ____ ____ $200k $200k
Capital gains ____ ____ $150k $150k
Self-employment deductions ____ ____ $11k $11k
Adjusted gross income $350k $350k $340k $340k
Standard deduction or itemized $98k $67k $98k $67k
Personal exemptions $11k ____ $13k ____
Taxable income $240k $280k $230k $250k





Federal tax liability $55k $57k $34k $36k
Alternative minimum tax $9.1k ____ $9.2k ____
Additional medicare tax $900 $900 ____ ____
Net investment income tax ____ ____ $3.4k $3.4k
Self-employment tax ____ ____ $21k $21k
Total federal tax liability $65k $53k $67k $57k
Witholding $74k $60k $67k $67k
Refund $9.7k $6.4k $430 $10k
Taxes Family 1 2017 Family 1 2018 Family 2 2017 Family 2 2018
Wages $10M $10M ____ ____
Capital gains ____ ____ $10M $10M
Standard deduction or itemized $930k $260k $930k $260k
Personal exemptions ____ ____ ____ ____
Taxable income $9.1M $9.7M $9.1M $9.7M





Federal tax liability $3.5M $3.5M $1.8M $1.9M
Alternative minimum tax ____ ____ $140k $2.0k
Additional medicare tax $88k $88k ____ ____
Net investment income tax ____ ____ $350k $370k
Total federal tax liability $3.6M $3.6M $2.3M $2.3M

Editor: Mira Rojanasakul

Source: Data compiled by H&R Block

Note: Taxes include all federal taxes excluding regular payroll and self-employment taxes.

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