Tax refunds this year are experiencing a significant decline, with early Internal Revenue Service (IRS) data revealing a staggering 28.9% decrease. As of February 2, the average refund stands at $1,395, a sharp contrast to last year’s $1,963. This drop is based on almost 2.6 million refunds, in contrast to 7.9 million at the same point in the previous year.
The shortened reporting period of five days, compared to the usual 12, is attributed to the later opening of the filing season on January 29, as opposed to January 23 the previous year. Experts caution that the current average may evolve as more returns are processed, especially since refunds incorporating the earned income tax credit (EITC) and the additional child tax credit (ACTC) are legally delayed until mid-February. The IRS estimates that most EITC filers will receive their refunds by February 27, provided there are no issues with their returns and they have opted for direct deposit.
Early indications suggest that reverting to pre-pandemic credit allowances will result in smaller refunds for numerous taxpayers. Last year, the average refund across nearly 163 million returns was $3,167, according to the latest IRS data. Despite this, tax experts emphasize that a substantial tax refund might not be preferable to having that money distributed throughout the year via proper withholding on the W-4 form.
The return to pre-COVID levels for the child tax credit (CTC) and earned income tax credit (EITC) last year meant less money back for taxpayers. This reduction in refunds could pose a challenge for households that rely on this financial boost to bolster their financial stability. A survey from the previous year revealed that Americans typically used their refunds to reinforce savings, reduce debt, and cover essential household expenses.