IRS Warns of Decrease in Tax Refunds for 2024
Americans who filed their taxes early this year were in for a surprise as they received smaller tax refunds compared to last year. The Internal Revenue Service (IRS) recently released data showing that the average tax refund issued by February 2 was $1,395, a significant decrease of $568 from the same time last year. This represents a drop of 29 percent. So far, the IRS has issued 2.6 million tax refunds, totaling approximately $3.65 million.
It’s important to note that the average refund amount may change in the coming weeks and months as more tax returns are processed. Additionally, those who are eligible for the earned income tax credit, a break given to moderate- and low-income Americans, will have to wait until the middle of February to receive their refund. However, the IRS has stated that most earned income tax credit filers can expect to receive their refunds by February 27, assuming there are no issues with their returns.
Despite the decrease in tax refunds, it’s worth mentioning that the IRS has received around 15.3 million returns so far, which is approximately a 19 percent decrease compared to last year. The agency attributes this decline to the fact that the 2024 filing season began on January 23, giving them 12 days to process returns by February 3. In comparison, the 2023 filing season only had five days to process returns. Taking this into account, the IRS considers the current filing season to have had a strong start.
Looking ahead, the IRS anticipates receiving more than 128.7 million individual tax returns this season. On average, three out of four tax filers can expect to receive a refund. It’s important to note that the filing season started on January 29 this year.
According to Illinois-based certified accountant Daniel Rahill, early filers may be receiving smaller refunds because they haven’t adjusted their tax withholding amounts. Rahill suggests that gig workers, in particular, may have earned more income but failed to increase their estimated tax payments, resulting in smaller refunds. He also points out that some filers may have experienced higher investment income due to a strong stock market, leading to increased taxes.
The decrease in tax refunds could have significant implications for many Americans who rely on this money for their savings or to pay off debt. A recent survey reveals that most Americans use their refund to save, pay off bills, pay off credit card debt, and cover other necessary expenses.
Rebecca Chen, an accountant, suggests that Americans need to change their mentality about tax refunds since it’s essentially their own money being returned to them. She highlights that the current high-interest, high-debt environment makes it even more crucial to reconsider the way tax refunds are viewed. Chen emphasizes that tax overpayments are akin to giving the IRS an interest-free loan throughout the year.
While smaller tax refunds may be disappointing for some, tax experts argue that refunds could actually be higher than last year. Mark Steber, chief tax information officer at Jackson Hewitt, explains that anyone whose income did not outpace inflation should fare better this year. He states that this isn’t just marketing spin but a result of scientific calculations.
In conclusion, the IRS has issued a warning about the significant decrease in tax refunds for the current year. Early filers have received smaller refunds compared to last year, which could be attributed to factors such as unchanged tax withholding amounts and increased investment income. While some Americans may be disappointed by the smaller refunds, others argue that refunds could actually be higher for certain individuals. Ultimately, Americans are encouraged to rethink their approach to tax refunds and consider adjusting their tax withholding amounts to better align with their financial goals.
