Understanding the IRS Announcement: Increase in Average Tax Refund for the Current Year and the Reason Behind It
The IRS has recently announced that they are issuing larger tax returns this year compared to the previous year, which is a reversal of the trend seen in previous weeks. According to a tax season update, as of February 16th, the average tax return so far totals $3,207, which is approximately 2% higher than the same period last year. In 2023, the average amount for a return around the same time was $3,140.
However, early data suggests that there is a drop in the number of tax returns received compared to last year. As of February 17th, the IRS received 34,743,000 tax returns, which is a 5.7% decrease from the same time last year when they received 36,769,000 returns. It is important to note that the 2024 tax season started about a week earlier than it did in 2023. The IRS stated that despite this loss of seven days in the comparison, the filing season statistics show a strong start to Filing Season 2024, with all systems running well.
Taxpayers typically receive a refund if they had too much money withheld from their paychecks or if they overpaid their taxes in the prior tax season. For families, this refund can be significant, as data from 2023 showed that a majority of filers received a refund.
This year, some taxpayers may receive a larger refund due to adjustments made by the IRS in response to higher inflation. The tax brackets have been increased by about 7% compared to the previous year, which means that workers whose paychecks did not keep pace with inflation could receive up to 10% more on their returns. Mark Steber, a tax information officer at Jackson Hewitt, explained that this increase is not just marketing spin but is based on scientific calculations.
In mid-February, the IRS announced that the average refund was nearly 30% lower than the same time the previous year. At that time, the average refund amounted to around $1,395. The IRS attributed this decrease to the fact that the tax-filing season started several days later this year. Additionally, federal law prevented the agency from issuing earned income tax credits or additional child tax credits before the middle of February 2024. Once the deadline passed, the issuance of these credits may have contributed to the increase in the average refund amount for the February 16th update.
The IRS expects to receive well over 100 million individual tax filings by the end of this year. The deadline for most taxpayers to file their taxes is April 15th, which means there are still several weeks remaining to file returns unless an extension is requested. Taxpayers who file electronically and choose the direct deposit option can expect to receive their refund within 21 days, according to the IRS.
Experts recommend filing taxes as soon as possible once all tax documents are gathered, as the IRS does not pay interest on refunds. Eric Bronnenkant, head of tax at Betterment, advises taxpayers to file early so that they can start investing their money. A recent study from Bankrate found that 28% of Americans planning to receive a tax refund intend to put the money into their savings, while 19% plan to use it to pay off debt, including credit card debt. Smaller percentages of individuals plan to use their refund for vacations, home improvements, investments, retail purchases, or other expenses.
Overall, with larger tax returns being issued this year and various ways individuals plan to use their refunds, it is essential for taxpayers to be mindful of filing their taxes promptly and making informed decisions regarding their finances.
