SALT LAKE CITY — Tax season is turning into a tax nightmare for many Utah families, especially those with more than two children, as they discover a significant jump in state income taxes.
“I’m paying an extra $1,000 on taxes when I was told my taxes would go down,” said St. George school teacher Scott Hicks.
The jump in state taxes is a result of the Tax Cuts and Jobs Act, the most significant tax code change in three decades that promised tax cuts for the average family. Turns out, the very things that make Utah unique are also a recipe for tax-time sticker shock under the new federal overhaul.
“A $1,000 tax increase is not helpful at all,” Hicks said. “A lot of people are really going to be hurt.”
Hicks and his wife have four daughters and had planned on a tax refund to pay off holiday bills.
“I went a little overboard with Christmas,” Hicks said. “The entire intent, while I was making the purchases in December, was to use the tax return to pay off the debt.”
With two master’s degrees in mathematics, Hicks always carefully plans ahead for taxes and files early. But when he crunched the numbers this year, he realized his Christmas debt would have to wait.
“I was extremely shocked when I did my taxes,” Hicks said. “Enough so that I did them three times — twice on the computer and once on paper by hand.”
Large families impacted most
So what happened? You could call it the perfect storm for Utah families: federal changes aren’t as impactful in Utah because of our large household sizes, charitable giving and high rates of homeownership.
For example, Congress doubled the standard deduction, but many Utah families were already receiving that same benefit by itemizing and deducting charitable giving and mortgage interest.
What’s more, Utah — a state with the largest average household size in the nation —was hit hard when the tax overhaul got rid of the $4,050 personal exemption, which a tax filer could claim for themselves, their spouse and each child.
“That’s the equivalent of adding $24,000 to my income,” Hicks said.
That change on the federal level also zapped the exemption on the state level, which is why Utah families are seeing the increase.
“Utah State taxes are linked to federal definitions,” said Christopher Collard, a research analyst with the Utah Foundation.
The Utah Foundation said the jump in 2018 taxes isn’t a surprise. The organization sounded the alarm last year, saying that the federal tax reforms would negatively impact lower and middle-income Utahns.
“Larger families will see the biggest impact,” read Collard’s March 2018, report about income taxation in Utah. “Both single and married households with more than two children will have a higher state income tax liability.”
The same report said that middle-income single filers and couples with no children could see a decrease in state taxes.
For larger families, Congress balanced out the loss of the personal exemption by increasing the child tax credit — but that didn’t happen on the state level.
“The state legislature had several options on the table,” Collard said.
Utah lawmakers were warned
Rep. Tim Quinn, R-Heber City, said he knew early on that this tax season would turn ugly for families.
“Many of those families had significant, way more than 30 or 40 percent increases, in excess of 200 percent increases in their state,” Quinn said.
During the 2018 legislative session, he introduced a bill to protect families from the higher tax bills but it didn’t pass.
“We had an opportunity to fix it and we didn’t,” Quinn said.
Over the summer, during a special session, Utah lawmakers tried again by restoring a fraction of the lost exemption in the form of a small child tax credit — worth about $34 per child.
Then, in October, lawmakers were warned again. A legislative fiscal analyst said even with that new credit, state taxes were about to skyrocket, in some cases more than $1,200 for larger families.
“Hopefully, my colleagues will recognize that last year we made a mistake.”
Quinn is trying again; he just introduced a new bill that would restore the full exemption for families with a joint adjusted gross income below $70,000. Even if it passes, it won’t affect the current tax season.
Accountant: start taxes now
Joshua Turnbow, a certified public accountant with Wasatch Tax Advisors, is alerting families to be extra prepared when filing their returns this year.
“Things have changed,” he said. “It’s not as easy and for some people there may be a tax increase.”
He agrees that the loss of the personal exemption will be a hard pill to swallow for many Utahns.
“For a large family, or a family of eight, you’re talking a $30,000 decrease in deductions,” Turnbow said.
In early February, he was surprised to see firsthand the impact of the federal changes after completing tax returns for two families.
“Both of them saw about a $500 increase,” he said. “I was surprised to see how much it went up. I wasn’t expecting that big of an increase on the state side.”
In case lawmakers don’t act, he says Utah residents should plan ahead for next year by adjusting what’s withheld from their paychecks.
To reduce taxes, he also recommends putting money aside in retirement and health savings accounts, and also contributing to a college savings plan, called my529 in Utah.
And start preparing your return now, he said, so that you have enough time to sort out how the new law affects you. Also, you’ll have time to save money in case you owe more than expected.
“Waiting until the very last minute this year is going to find a lot of people in a surprise,” Turnbow said.