Why Everyone Is Suddenly Talking About the 2017 Tax Cuts and Jobs Act

"Refund shock" is very real for millions, and it's all thanks to the 7-year-old Paul Ryan/Trump tax plan..

It's tax season, which means posts like this one are making the rounds across social media, attempting to help upset taxpayers make sense of why they've suddenly found they owe the government money this year.

Perhaps you are one of the many taxpayers shocked to find a significantly smaller refund or an unexpectedly large tax bill when filing your return this year. The culprit may be the Tax Cuts and Jobs Act (TCJA), which passed in 2017. With tax misinformation abounding online, it's important to understand what really changed.

What is the Tax Cuts and Jobs Act?

The TCJA was the biggest tax code overhaul in 30 years. Supporters (including then-House Speaker Paul Ryan) claimed it would simplify tax filing, grow the economy, and let most Americans keep more of their paychecks throughout the year. Allegedly. Unfortunately, the reality of these sweeping changes was to disproportionately benefit the rich—a reality the not-so-rich are now feeling during tax season.

One major change of the TCJA was an increase in the standard deduction. This means fewer taxpayers now choose to itemize. The downside for some was the elimination of popular deductions (including those on moving expenses, alimony, and others) and new caps on state and local tax deductions and mortgage interest. For many itemizers, losing these write-offs meant owing more to Uncle Sam.

Another hit came from lower withholding rates. The IRS updated employers' withholding tables in early 2018 to align with the new tax rates and rules. Since less tax was withheld from paychecks, some taxpayers unexpectedly owed additional tax when filing their returns, instead of getting a refund.

The TCJA also eliminated the individual mandate penalty for not having health insurance. While repealing the fine gave taxpayers a break, it also messed with the subsidy calculations for Obamacare insurance. Some subsidy recipients owed back a portion of the advanced premium tax credit received.

Why people are talking about the Tax Cuts and Jobs Act right now

A key provision in the TCJA was the reduction in individual income tax rates across all tax brackets. For 2018, the top rate was lowered from 39.6% to 37%, while rates for the other brackets saw more modest drops. The law also nearly doubled the standard deduction and expanded the child tax credit.

So why is this law from 2017 in the news this year? Well, the planned tax increases were baked into a sliding scale; more specifically, every year for seven years, a tax increase has slid down one tax bracket. And now, we're on year seven. This means that tax increases have moved progressively down to the lowest tax bracket, so every taxpayer beyond those in the top brackets has been hit with increased taxes in order to pay for cuts for the highest brackets.

Critics argue this tax bill increased the burden on lower- and middle-income taxpayers to finance tax breaks for the wealthy and corporations, betraying the spirit of tax reform. More practically, the lowest earners are only now feeling the impact of a tax reform that passed seven years ago. (I'll let you draw your own conclusions about the politics involved.)

The bottom line

Whatever your tax bracket, refund shock has become a very real thing for millions thanks to the TCJA changes. Progressives argue it benefited the wealthy and corporations the most. Conservatives credit it for economic growth, since those wealthy folks undoubtedly used the tax savings to invest in business and create jobs. Regardless of ideology, understanding the tax code changes can help taxpayers file accurately and adjust their withholdings to avoid surprises at tax time.

While everyone's tax situation is unique, the TCJA provides some valuable lessons for anyone filing now:

• Don't rely on refunds as forced savings.

• Review your withholdings annually. Check out the Tax Withholding Estimator from the IRS to effectively tailor how much income tax to withhold.

• Work with a tax pro to understand how policy impacts your bottom line. Here's are sure signs you should hire an accountant to do your taxes this year instead of filing them yourself

When it comes to taxes, information is power. Empower yourself by learning how the code applies to you.