The Internal Revenue Service (IRS) is issuing smaller repayment checks, typically, at the onset of the current income tax filing season, as per fresh statistics from the revenue service.
Presently, the federal income tax refunds are averaging $1,395, based on the data released by the IRS, considering the filing season that commenced less than two weeks ago.
This reflects an almost 29% reduction in the average refund size when compared to the initial data on last year’s income taxes. However, taxpayers should not worry excessively, as there are several factors tempering the refund scenario.
Firstly, the IRS has commenced processing tax returns slightly later this year than it did in the previous year. The filing season started on Jan. 29, in contrast to the previous year’s start on Jan. 23, resulting in fewer returns being processed by the IRS at this point compared to last year. Hence, it distorts the comparison of refund amounts.
The IRS noted in a statement regarding the Friday’s numbers, “Considering the loss of 7 days in this comparison, filing season statistics … show a strong start to filing season 2024, with all systems running well.”
As of now, the IRS has received approximately 15.3 million returns, marking a roughly 19% decrease compared to the initial data from last year. It is probable that the average refund size for 2024 will increase as more returns come in.
At the beginning of the last year’s tax season, the average refund was nearly 11% lower compared to the previous year. However, by the season’s end, the average refund was only 2.6% smaller, totaling $3,167.
Despite the slightly delayed initiation this year, the deadline for paying any owed taxes and filing a return or extension remains April 15.
Another element to consider regarding the refund sizes is the IRS’s withholding of certain refunds until at least Feb. 15, contributing to the relatively lower averages reported on Friday.
Under the Protect Americans from Tax Hikes Act of 2015, refunds from returns claiming the earned-income tax credit or the refundable portion of the child tax credit are retained until Feb. 15. This delay is intended to prevent fraud.
The child tax credit offers up to $2,000 per child, with $1,600 of that amount potentially converted into refund money. A proposed bill in the Senate aims to raise the refundable portion to $1,800 for the tax returns being filed this year.
Of course, each individual’s tax situation varies. Changes such as a new baby, spouse, or source of income can impact an individual’s repayment size. However, overall, tax experts assert that for the 2023 tax year, there are no federal-law changes that should diminish average refunds from the previous year.
Tom O’Saben, Director of Tax Content and Government Relations at the National Association of Tax Professionals, noted that the Friday IRS numbers are based on a small sample size. O’Saben anticipated that comparing refund amounts in 2023 with 2024 should yield similar results, barring any alterations from Congress. Furthermore, O’Saben suggested that potential changes to the child tax credit could likely increase average refunds.
There is also a potential positive aspect: If an individual’s 2023 income did not keep pace with inflation rates, it could potentially reduce their tax liability and increase their refund.
The inflation-adjusted segments of the tax code have risen by 7% for the current tax returns. Some of the provisions receiving adjustments include vital components of a return such as the standard deduction and income ranges for tax brackets.
Once all this year’s returns are processed, average refunds for this year may actually end up being 5% to 10% higher, according to the chief tax-information officer at tax-preparation company Jackson Hewitt.
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