If you follow financial media, you may have seen articles covering frustrated folks lamenting smaller tax returns this year. A surprise! After all, President Trump’s signature legislative achievement so far is December 2017’s Tax Cuts and Jobs Act, the biggest tax code reform in decades, which slashed tax rates for many Americans. Lots of folks seemingly expected it to deliver big refunds this tax season, but some are seeing either smaller refunds than last year—or a bill. Many are venting on social media or elsewhere. That is understandable to an extent—no one likes a surprise involving either a receipt of less money or an unexpected tax bill. View it in a different light, though, and we think the tale of the smaller refund is more a positive in disguise.

It is early, but refunds are overall smaller thus far this tax season. The IRS recently reported the average tax refund is down -8.7% this year to $1,949—$186 less than last year.[i] This is with about 11.4 million early filers receiving refunds through February 8.[ii] That may seem representative, but the IRS expects around 150 million individual tax returns by April 15.[iii] So the average refund could go up or down by then—and your own individual circumstance may not reflect the average.

In past years, some folks whose financial circumstances hadn’t otherwise changed much during the year filed early to get their hands on a substantial refund. Many think of it like a “bonus.” But this year, the new tax law may have changed things. Some deductions have been limited or eliminated. For example, state and local tax deductions—for income and property taxes—are capped at $10,000. If you are a high earner in a high-tax state, your tax refund may shrink. Many other deductions face new limits, which would also mean you face a bill because you are paying more in tax. Now, these changes are mitigated by the Act’s doubling the standard deduction, but some folks will likely pay more. That isn’t a positive reason to see a smaller refund.

However, most taxpayers—even those seeing smaller refunds—are actually paying less. Perhaps the most common driver of smaller refunds: reduced tax withholding. Due to the new, mostly lower, tax brackets, the Treasury suggested employers reduce the amount they withhold for federal taxes. Some employees actually did this themselves, too! This means many received slightly larger paychecks throughout 2018—driving that smaller refund. If this is you, that is good news, not bad.

Getting a refund means you gave Uncle Sam an interest-free loan last year. It isn’t a bonus. It is earnings you could have had use of—invested, saved, paid down debt—all year. Now, it may be a pleasant surprise having it returned, but as the name implies, it is a refund. It is the equivalent of finding a $20 in your Levis. Yours all along, but you just may have forgotten about it. If you don’t get a refund, it means you—not the government—had the use of it all along. If your refund is small, you overpaid only by a little. That said, owing Uncle Sam a big tax bill isn’t necessarily better—because it could result in tax penalties.

The goal should be getting tax withholdings during the year just right, so you are not extending Uncle Sam an interest-free loan or risking tax penalties. This involves setting your W-4 form—which tells your employer how much of your paycheck to set aside for tax purposes—to reflect the amount of taxes you are likely to owe. The IRS provides a handy Withholding Calculator to help you through the process. It takes some legwork, requiring some recent paystubs, your most recent tax return and an idea about your medical and interest expenses and charitable giving. But entering it all in should give you a good sense of how to adjust your W-4. Additionally, if you have investments or engage in other income-generating activities (outside of your main employment), you may also need to estimate and pay taxes quarterly on them. The IRS has a form for this, too! But it is rather more involved. If you aren’t sure how to calculate estimated quarterly tax payments, consult your tax advisor.

Unless you are the rare breed who enjoys paperwork and accounting, taxes usually aren’t fun, less so when there are hard-to-understand changes afoot, which this year brings in spades. Getting a tax refund at the end of the ordeal may seem like the only consolation. But a refund isn’t a reward when you consider what you could have done with the funds. Aim smaller!

Investing in stock markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance is no guarantee of future returns. International currency fluctuations may result in a higher or lower investment return. This document constitutes the general views of Fisher Investments and should not be regarded as personalized investment or tax advice or as a representation of its performance or that of its clients. No assurances are made that Fisher Investments will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Not all past forecasts have been, nor future forecasts will be, as accurate as any contained herein.

[i] Source: IRS, as of 2/14/2019. Filing Season Statistics, cumulative year-to-date statistics comparing the weeks ending 2/9/2018 and 2/8/2019.

[ii] Ibid.

[iii] “IRS Kicks off 2019 Tax-Filing Season as Tax Agency Reopens; Use IRS.Gov to Avoid Phone Delays,” Staff, IRS, 2/12/2019.

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