Smart Tax Planning

Residents of this city received the largest tax refunds

Key Points
  • Taxpayers in Midland, Texas, who got money back from the federal government received an average refund of $3,800 in the 2018 tax year, according to MagnifyMoney’s analysis of IRS data.
  • Texas — which has no state income taxes — is home to six of the top 10 cities with the highest average tax refunds.
  • Income tax withholding matters when it comes to refunds: If you overpay to the IRS now, you get a larger refund next year.

Everything is bigger in Texas, including the tax refunds.

Residents in Midland, Texas, received the most money back from Uncle Sam when they filed their 2018 tax returns: an average refund check of $3,800, according to MagnifyMoney.com.

The personal finance site analyzed 2018 tax filing data from the IRS, focusing on 157 metropolitan areas in the U.S.

Houston and McAllen, Texas, both round out the top three cities with the heftiest refunds from Uncle Sam, with taxpayers getting back an average of $3,735 and $3,604, respectively, MagnifyMoney found.

"It would seem to be the case that they are overpaying on federal income taxes," said Chris Horymski, senior research analyst at MagnifyMoney.

Taxes in Texas

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The Lone Star State is one of seven that don't levy taxes on income. The others are Alaska, Florida, Nevada, South Dakota, Washington and Wyoming.

New Hampshire and Tennessee won't tax your paycheck, but they will tax your investment income.

Texas makes up for its zero-income tax by applying levies elsewhere. For instance, the combined state and average local sales tax rate is 8.19%, ranking the Lone Star state 12th in the nation, according to the Tax Foundation.

Further, homeowners residing there pay a mean effective property tax rate of 1.67% — sixth in the nation, the Tax Foundation found.           

Review your withholding

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To a great extent, what you get back from the IRS is related to the taxes you withhold from your paycheck.

When the Tax Cuts and Jobs Act went into effect in 2018, the Treasury and IRS overhauled the tax withholding tables and Form W-4.

Together, these forms determine the amount of income tax withheld from employees' paychecks.         

Changes to the withholding documents reflected the higher standard deduction, the elimination of personal exemptions and tweaks to certain itemized deductions.

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Withhold too much during the year, and you set yourself up for a large refund from the IRS.

Withhold too little, and you'll take home more money. But you also run the risk of owing the taxman when you file the following year.

The good news is that you can adjust your withholding during the year. "If your cash flow is tight, you can modify your Form W-4 and have less taken out of your paycheck," said Horymski.

"You can always calibrate the amount you want deducted from your pay," he said.