Janus Henderson Releases Results of Proprietary Income Tax Study

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 the highlights:

“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 implications.”

The five key findings specific to respondents include:

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 strategies.

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 Exchange (ASX).

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