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Tax refunds so far this year are noticeably smaller than they were at the same time last year, according to early data published by the IRS.
The average refund check so far this year is worth $1,395 as of Feb. 2, about 29% lower compared to the $1,963 average recorded last year. That is based on nearly 2.6 million tax refunds collectively worth about $3.65 billion.
However, the IRS has cautioned taxpayers the average refund amount will likely change in the coming months as more returns are processed.
Americans who expect to receive the earned income tax credit, a tax break for low- to moderate-income workers,or the child tax credit cannot legally receive their refund before mid-February, which could also be distorting the picture.
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A blank 1040 tax return form from the IRS. (iStock / iStock)
The decrease in refund size can be concerning to millions of Americans who depend on the influx of money from Uncle Sam to make major purchases, save for retirement or pay off debt. On top of that, millions of taxpayers are still struggling with high inflation, which has sent the cost of staples like food and rent soaring higher.
Taxpayers typically receive a refund if they had too much money withheld and overpaid their taxes the previous year. For many families, the money can be substantial. Nearly three-quarters of filers received a tax refund in 2023, with an average payment worth about $3,176, down about 3% from the previous year.
Some tax experts say refunds could end up being much bigger in 2024, with some people receiving up to 10% more than they did last year. That would amount to a roughly $300 to $400 increase.
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"For anybody whose income did not outpace inflation, they should do better," Mark Steber, chief tax information officer at Jackson Hewitt, told FOX Business. "It's not even voodoo or marketing spin, it's pretty much just science."
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The bigger refunds are a silver lining of the inflation crisis that ravaged millions of households' finances last year.
That's because the IRS annually adjusts the federal income tax bracket and standard deduction. In times of painfully high inflation, the increases are more significant and impactful for taxpayers. In 2023, the tax brackets shifted higher by about 7.1%, a historic increase that is also higher than the 5.5% earnings increase received by the median worker last year.
Most taxpayers will have until Monday, April 15, to submit their returns or request an extension.
The IRS expects to receive more than 128.7 million individual tax returns by this year's deadline.
The IRS building in Washington, D.C., on Jan. 24, 2023. (Stefani Reynolds/AFP via Getty Images / Getty Images)
To receive a refund within 21 days of filing, the IRS has cautioned filers they must submit returns electronically, ensure that they are accurate and complete and request to receive the refund via direct deposit.
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However, the tax collection agency warned some returns may require "additional review" and take longer to process if their systems identify any errors, if there are mistakes on the return or if it suspects theft or fraud.
"Once you're relatively certain that you have all of your tax documents, file as soon as you can so that you can start investing your money," Eric Bronnenkant, head of tax at online financial adviser Betterment, previously told FOX Business. "Because, in general, the IRS doesn't pay you interest on your refunds. So, getting that money in your hands sooner is better, for sure."
