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Due to the increasing volume of returns being processed, the IRS has cautioned taxpayers that the average refund amount will likely change in the coming months. However, early data published by the IRS indicates that tax refunds this year have been smaller than last year.
Smaller Refunds
According to the IRS, so far this year the average refund check has been $1,395, which is almost a whopping 30% lower than the $1,963 average last year. Approximately $3.65 billion worth of tax refunds were collected from nearly 2.6 million individuals.
For millions of Americans who rely on their tax refunds to make major purchases, save for retirement or pay off debt, the decline in refund size is concerning. The cost of basic needs like food and housing have also risen as a result of high inflation, which is still hitting millions of taxpayers.
To combat inflation, the IRS annually adjusts the federal income tax brackets and standard deductions. It is more difficult for taxpayers to deal with increases in times of painfully high inflation.
Overpaid taxpayers will generally receive a refund if too much money was withheld. A substantial amount of money can be saved by many families. An average refund of $3,176 was received by three-quarters of filers in 2023, a decrease of about 3% from last year.
Those expecting 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 until mid-February.
Slower Processing
Once you prepare and file your return, you can expect delays as well. Path Act and ID Verification are significantly impacting IRS processing the actual refunds.
It is anticipated that the IRS will receive more than 128.7 million individual tax returns this year. The IRS has warned filers that electronic returns must be filed within 21 days of filing, that accurate and complete returns must be filed, and that direct deposits must be requested.
The deadline for filing returns or requesting an extension is Monday, April 15.
Sources
"2024 IRS TAX REFUND UPDATE - New Refunds Released, Path Act, ID Verification Delays, Transcripts" - UI Vlogs 2021
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Frequently Asked Questions
How much smaller are tax refunds in early 2024 compared to last year?
Early 2024 data shows the average tax refund is $1,395, which is nearly 30% lower than the $1,963 average refund issued at the same point last year. In total, approximately $3.65 billion in refunds were distributed to nearly 2.6 million taxpayers. The IRS has noted that as more returns are processed, the average refund amount may shift throughout the filing season.
When can taxpayers expecting the Earned Income Tax Credit or Child Tax Credit receive their refund?
Taxpayers who are claiming the Earned Income Tax Credit (EITC) or the Child Tax Credit cannot legally receive their refund before mid-February. This restriction is a legal requirement, meaning even a perfectly filed return will be held until that window opens. Taxpayers claiming these credits should plan accordingly and not rely on receiving funds before that date.
What is the deadline to file a 2023 federal tax return or request an extension?
The deadline to file your federal tax return or submit a request for an extension is Monday, April 15. Missing this deadline without filing an extension can result in penalties and interest on any taxes owed. Filing electronically and requesting direct deposit are recommended steps to help speed up the process once your return is submitted.
What factors are causing delays in IRS refund processing in 2024?
Two significant factors slowing down refund processing are the PATH Act and ID Verification requirements, both of which are impacting the IRS's ability to release refunds quickly. The IRS is also expected to receive more than 128.7 million individual tax returns this filing season, adding to processing volume. To minimize delays, the IRS advises taxpayers to file electronically, submit accurate and complete returns, and request direct deposit.
How does inflation affect tax refunds and federal income tax brackets?
High inflation has strained millions of taxpayers by raising the cost of basic needs like food and housing, making it harder to absorb any reduction in refund amounts. To address inflation's impact, the IRS annually adjusts federal income tax brackets and standard deductions. However, during periods of particularly high inflation, these adjustments may not fully offset the financial pressure taxpayers experience.
About the Author
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Nick Charveron is a tax professional at IRS.com with expertise in U.S. federal and state tax law. Their articles are written to help taxpayers understand complex tax topics in plain English.