The IRS is issuing smaller refund checks, on average, at the start of this year’s tax filing season, according to new numbers from the tax agency.
Federal income tax refunds so far have averaged $1,395, according to Internal Revenue Service data released Friday on the filing season that began less than two weeks ago.
This is a nearly 29% decrease in the size of the average refund year over year, compared to the first set of income tax data last year.
But breathe, taxpayers. There are several reasons why the reimbursement picture isn’t as bleak as it might seem.
First, the IRS started processing tax returns a little later this year than last year. Filing season began Jan. 29, compared to starting Jan. 23 last year, meaning the IRS hasn’t processed as many returns as it had last year. This distorts the comparison of refund sizes.
“Considering the 7-day loss in this comparison, the filing season statistics… show a strong start to the 2024 filing season, with all systems functioning well,” the IRS said in a note on the numbers on Fridays.
The IRS has received 15.3 million returns so far, a decrease of about 19% from the first round of data last year. As more returns come in, it’s a good bet that the average size of refunds in 2024 will increase.
At the start of last year’s tax season, the average refund was nearly 11% lower than the previous year. But at the end of the season, the average refund was 2.6% lower, coming in at $3,167.
Despite the slightly delayed start of the year, April 15 still remains the deadline to pay taxes owed and to file a return or for an extension.
Another reason to relax on the size of refunds: The IRS can’t issue some refunds until at least Feb. 15, and that also plays into the relatively lower averages released Friday.
Under the Protect Americans from Tax Hikes Act of 2015, refunds on returns claiming the earned income tax credit or the refundable portion of the child tax credit are being held until February 15. The delay is intended to prevent fraud.
The child tax credit pays up to $2,000 per child, and $1,600 of that amount can currently turn into cash refunds. A bill pending in the Senate would increase the refundable portion to $1,800 on tax returns people file this year.
Of course, everyone has a different tax situation. There are tax implications related to changes such as a new child, a new spouse or a new source of income.
And this is where the third reason for the money back guarantee comes into play.
Of course, these changes can influence the extent to which an individual performs. But overall, tax preparation experts say, there are no changes to federal law for the 2023 tax year that would push refund averages lower than the previous year.
Friday’s IRS numbers are based on a small sample size, said Tom O’Saben, director of tax content and government relations with the National Association of Tax Professionals.
As for reimbursement amounts in 2023 versus 2024, O’Saben said, “I expect things to be very similar, barring any changes by Congress.” If anything, changes to the child tax credit would increase refunds on average, she noted.
There’s another silver lining: If a person’s income in 2023 didn’t keep up with inflation rates, that could potentially reduce their tax liability and increase their refund.
The parts of the tax code indexed to inflation increased by 7% in the tax returns Americans are now collecting. Some of the provisions that are receiving adjustments include key parts of a return like the standard deduction and income ranges for tax brackets.
According to tax preparation firm tax information manager Jackson Hewitt, average refunds this year could actually be 5% to 10% higher once the dust settles on all of this year’s returns.
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