Tax refunds are $372 smaller on average this year
Tax refunds are consistently coming in smaller than last year, according to the latest weekly data from the Internal Revenue Service, an outcome many tax experts had anticipated.
Still, the agency appears to be on top of the filing season, a reversal from the last few years.
The average refund amount was $2,933 based on 53.9 million tax returns processed through March 17, the IRS reported, down 11.3% from $3,305 during the same period last year, when the agency processed 51.7 million refunds. In total, the IRS has doled out $158.1 billion in refunds versus $171.1 billion last year.
Tax experts this year warned that refunds could be smaller since most of the pandemic-era benefits have expired, a setback for taxpayers counting on that cash influx.
“It’s a big deal,” Joanna Ain, associate director of policy at the not-for-profit Prosperity Now, told Yahoo Finance. “We have tax refunds that are down which historically have made a huge difference in the lives of families that count on this kind of boost in their income each year. With inflation up, their necessities go up.”
Why refunds are smaller this year
Many of the tax benefit enhancements under the American Rescue Plan expired this year.
For instance, the Child Tax Credit decreased to $2,000 per child dependent compared with last season’s $3,600. It’s also no longer fully refundable, meaning taxpayers won’t receive the full credit if the amount is more than how much tax they paid. Those most impacted were lower-income households.
The maximum Earned Income Tax Credit amount for eligible single filers with no children also fell to $500 this season from $1,502 last year. The Child and Dependent Care Credit – which includes out-of-pocket costs for child care and day camps – was reduced this year to $2,100 from $8,000 last year.
The loss of the above-the-line charitable deduction along with the expiration of the mortgage insurance premium deduction could also result in lower refunds.
“Whatever we tell clients, a smaller refund can be bad news,” Rus Garofalo, founder and president of BrassTaxes, told Yahoo Finance. “We’ve told some clients they owe more tax than they thought when they were thinking they were getting a bigger refund. It’s hard.”
IRS speeds up processing
One positive change year is how the IRS is handling the tax season.
As of March 17, the agency had processed just over 63.1 million returns, an increase of 2% over the same time a year ago when it got through 61.9 million returns. It has also distributed over 49.1 million refunds, an increase of 8.5% from 45.3 million refunds during the same period a year ago, the IRS data noted.
That’s a significant improvement for American taxpayers who have faced back-to-back challenging tax seasons. Increased funding to help onboard staff and modernize the agency’s dated technology have also appeared to help the taxpayer experience this year and lessen the paper backlog that has dragged on for two years.
Fewer taxpayers are seeking help on the IRS website, which could indicate this year’s tax season is less confusing. With only three weeks left until tax day on April 18, 20.7% fewer people have browsed the IRS website, the weekly data showed.
The decline could also mean that taxpayers are getting through to the IRS by phone, which was next to impossible in the past two years. IRS employees answered only 11% of taxpayer phone calls in 2021 and 13% in 2022, according to the National Taxpayer Advocate.
Avoid unnecessary delays by filing electronically
One way to avoid delays is by double-checking your tax return, filing electronically, and requesting direct deposit for your refund. So far, roughly 97% of the nearly 71.7 million tax returns filed this season have been received electronically, according to the IRS.
The IRS is expecting 168 individual tax returns to be filed before the April 18 tax deadline.
“Electronic filing helps reduce math errors and identifies potential tax credits or deductions the taxpayer may be eligible to claim,” the agency said in a statement last week. “Filing electronically and choosing direct deposit is the fastest and most secure way to receive a refund.”
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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