IRS reports 29% drop in average tax refund compared to last year. Experts foresee potential increase in 2024 refunds amid inflation. (Antony Weerut – stock.adobe.com)
The reduction in refund size raises concerns for many Americans who rely on these funds from the government to finance major purchases, contribute to retirement savings, or alleviate debt burdens. This issue is compounded by the ongoing challenge of high inflation, which has driven up the costs of essential goods and services such as food and housing.
Tax refunds typically occur when individuals have had excess money withheld from their paychecks, resulting in an overpayment of taxes for the previous year. These refunds can be substantial for many families, with nearly three-quarters of filers receiving an average payment of about $3,176 in 2023, a slight decrease from the prior year.
Despite the current trend of smaller refunds, some experts anticipate larger refunds for the 2024 tax year, with potential increases of up to 10% compared to the previous year. Mark Steber, Chief Tax Information Officer at Jackson Hewitt, suggests that individuals whose income did not keep pace with inflation may stand to benefit from this adjustment.
This potential increase in refunds serves as a silver lining amidst the challenges posed by inflation. The IRS annually adjusts federal income tax brackets and standard deductions, with the adjustments being more significant during periods of high inflation. In 2023, tax brackets shifted higher by approximately 7.1%, outpacing the 5.5% earnings increase experienced by the median worker.
Taxpayers have until April 15th to submit their returns or request an extension, with the IRS anticipating over 128.7 million individual tax returns by the deadline. To expedite the refund process, the IRS recommends filing electronically, ensuring accuracy, and opting for direct deposit. However, some returns may undergo additional review, leading to longer processing times in cases of errors or suspected fraud.
Experts emphasize the importance of filing taxes promptly to expedite the refund process, as the IRS does not provide interest on refunds. Eric Bronnenkant, Head of Tax at Betterment, underscores the value of promptly receiving tax refunds to facilitate financial planning and investment opportunities.
Recent data released by the IRS indicates that tax refunds for the current year are notably smaller compared to the same period last year. As of February 2nd, the average refund check stands at $1,395, marking a significant decrease of 29% from the previous year's average of $1,963. This data is drawn from nearly 2.6 million tax refunds totaling around $3.65 billion.
However, the IRS advises caution in interpreting these figures, as the average refund amount is expected to fluctuate in the coming months as more tax returns are processed. Notably, individuals eligible for the earned income tax credit or the child tax credit cannot legally receive their refunds before mid-February, potentially influencing the current statistics.
