IRS Reports Smaller Average Tax Refunds
The IRS reports a decrease in average tax refunds, but a delayed start and upcoming returns may increase refund sizes. The child tax credit may also provide additional refund opportunities.
The Internal Revenue Service (IRS) has released new data showing that refund checks for federal income taxes are smaller compared to last year. On average, refunds are currently amounting to $1,395, which is a decrease of nearly 29% from the previous year's figures. However, taxpayers should not panic just yet, as there are several reasons why the refund picture may not be as bleak as it appears.
One factor to consider is that the IRS started processing tax returns a bit later than usual this year. The filing season began on January 29, whereas it had started on January 23 the previous year. Consequently, the IRS has not processed as many returns at this point compared to last year, skewing the comparison of refund sizes. In a note addressing these figures, the IRS stated that despite the loss of seven days in this comparison, the filing season statistics indicate a strong start to the 2024 filing season, with all systems running smoothly.
To date, the IRS has received approximately 15.3 million returns, representing a roughly 19% decrease compared to the same period last year. As more returns come in, it is highly likely that the average refund size for 2024 will increase.
Looking back at last year's tax season, we can see a similar trend. At the beginning of the season, the average refund was nearly 11% lower than the previous year. However, by the end of the season, the average refund had only decreased by 2.6%, ultimately amounting to $3,167.
Despite the slightly delayed start this year, taxpayers should note that April 15 remains the deadline to pay any taxes owed and to file a return or request an extension.
Additionally, it is important to understand that some refunds cannot be issued until at least February 15. This delay is a result of the Protect Americans from Tax Hikes Act of 2015, which withholds refunds for returns claiming the earned-income tax credit or the refundable part of the child tax credit until mid-February. The purpose of this delay is to prevent fraudulent claims.
In summary, while the average tax refund size is currently smaller compared to last year, it is important to consider various factors that may contribute to this difference. With the filing season still underway and more returns expected, it is likely that the average refund will increase in size.
The child tax credit is a valuable benefit that provides up to $2,000 per child. What's even better is that $1,600 of that amount can currently be received as a refund. However, there is a new bill in the Senate that aims to increase the refundable portion to $1,800 for this year's tax returns.
It's important to note that everyone's tax situation is unique, and certain life changes can have implications for taxes. Events such as having a new baby, getting married, or acquiring a new source of income can impact the size of an individual's tax refund.
But here's the reassuring news: experts in tax preparation confirm that no major federal-law changes for tax year 2023 should significantly lower refund averages compared to the previous year.
While the recent statistics released by the IRS are based on a small sample size, Tom O'Saben from the National Association of Tax Professionals believes that refund amounts in 2023 will likely be similar to those in 2024, with potential increases if changes to the child tax credit are implemented.
There is also a silver lining for some taxpayers. If an individual's income in 2023 did not keep up with inflation rates, it could potentially reduce their tax liability and increase their refund.
This year, various aspects of the tax code, such as the standard deduction and income ranges for tax brackets, have seen a 7% increase to account for inflation. As a result, average refunds for this year's returns might actually be 5% to 10% higher once everything is settled, according to experts at Jackson Hewitt, a prominent tax-preparation company.