Tax refunds continue to come in lower than last year, according to the latest weekly data from the Internal Revenue Service, a disappointing outcome for many taxpayers.
One bright spot, though, is that the agency’s operations appear to have improved over last year.
The average refund amount was $1,997 based on tax returns processed through Feb. 10, down 14% from $2,323 during the same period last year, the IRS reported. Last week, the average refund came in 11% lower based on fewer returns. The new number is based on nearly 13.3 million refunds the agency has disbursed this year versus 8.9 million refunds it distributed at the same time last year.
Tax experts have been warning that refunds could be smaller this year since most of the pandemic-era tax benefits have expired.
“We have been seeing refunds coming down because of the bigger and better Child Tax Credit going away and the COVID federal and state stimulus money gone away,” Rus Garofalo, founder and president of Brass Taxes, told Yahoo Finance. “Client expectations are based on whatever their tax result was last year, not on what laws and special rules changed over the last year.”
Reasons for tax refund shrinkage
This year, the maximum amounts for the Child Tax Credit (CTC), Earned Income Tax Credit (EITC), and Child and Dependent Care Credit returned to pre-COVID levels. The American Rescue Act temporarily increased these credits last year.
The CTC decreased to $2,000 per child dependent compared with last tax 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. That hits the lowest-income families the most.
The maximum EITC amount for eligible single filers with no children 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 versus $8,000 last year.
The loss of the above-the-line charitable deduction and the expiration of the mortgage insurance premium deduction — also could lower refunds this year.
IRS is keeping up
The good news, the data shows, is that the IRS isn’t falling behind. As of Feb. 10, the agency had processed just over 26.6 million tax returns, an increase of 13.6% over the same period a year ago when it got through just under 23.4 million returns.
It has also distributed over 13 million tax refunds, 48.4% more than the 8.9 million refunds it had sent out at this time last year.
The considerable progress comes as a positive sign for American taxpayers who have faced back-to-back challenging and confusing tax seasons. Increased funding to boost staffing and revamp dated technology appear to be helping the IRS reduce its existing paper backlog and speed up its processing this year.
“The new funding provided to the IRS in President Biden's Inflation Reduction Act is meant to help the agency pull itself out of the morass caused by a decade of underfunding,” Steve Wamhoff, federal policy director for the Institute of Taxation and Economic Policy, told Yahoo Finance. “And while it's too early to make predictions, what we are seeing so far seems in keeping with that."
Fewer taxpayers are seeking help on the IRS website, which could mean this year’s tax season is less confusing. Though it's still early in the tax season, 13.4% 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, unlike last year.
"In the first couple of weeks of the tax season we have already seen that 89% of taxpayers' calls have been answered by IRS agents and 93% have been answered when you count automated answers,” Wamhoff said, “whereas last year, the IRS was able to answer only 13% of calls.”
Avoid unnecessary delays by filing electronically
The IRS still has many weeks left in the 2023 tax season. The agency is expecting roughly 168 million individual tax returns to be filed before the April 18 tax deadline.
One simple way to avoid delays is by double-checking your return and filing your return electronically – opting for a direct deposit for your tax refund. So far, over 94% of the 28.8 million returns received have been filed electronically this year, the IRS found.
“I filed my tax return soon after they announced their opening,” Eric Bronnenkant, head of tax at Betterment, told Yahoo Finance. “So far, the feedback I’ve been getting is that the IRS is keeping things moving along.”
Ronda Lee also contributed to this report.
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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