Early IRS data confirms 11% smaller tax refunds

WHAT YOU NEED TO KNOW:

• The IRS confirmed that this year’s average tax refunds are so far 11% less than last year’s.
• The agency previously warned that the end of several pandemic-era provisions would decrease tax refunds.
• The end of expanded support could impact low-income families the most, who depend on these checks for necessary expenses.

Early data from the Internal Revenue Service (IRS) confirmed expectations that this year’s tax refunds are significantly smaller than last year’s.

According to the IRS, the average refund amount as of Feb. 3 was $1,963, which is 10.8% less than last year’s average of $2,201.

But this year has seen a higher share of taxpayers receiving refunds. So far, the agency has disbursed nearly 8 million refunds, compared to last year’s 4.33 million disbursements. About 48% of processed returns also received a refund compared to last year’s 33%.

The average refund amount could still change as the agency processes more returns. However, as the IRS warned a month ago, the end of several pandemic-era provisions would lower tax refunds, thereby impacting people who have been depending on these checks for additional funds.

Betterment’s head of tax, Eric Bronnenkant, told Yahoo Finance, “Everyone’s situation is unique, but on average refunds are going to be smaller due to less stimulus.”

The latest data for the 2022 filing season, as of Dec. 28, revealed that among nearly 110.6 million returns that resulted in a refund, last year’s average refund was $3,293. The 14.3% increase from 2021 can be attributed to the increased Earned Income Tax Credit (EITC), Child Tax Credit (CTC), and Child and Dependent Care Credit introduced by the American Rescue Act. These credit amounts, however, have since returned to pre-pandemic levels.

Last year, the EITC had a higher income threshold, providing eligible single filers with no children up to $1,502. This year, however, the maximum amount these filers can qualify for is $500.

The CTC also decreased from last year’s $3,600 per child dependent to $2,000. Since it’s no longer fully refundable as well, taxpayers will not receive the full credit if the amount exceeds their paid tax.

The Child and Dependent Care Credit also dropped from last year’s $8,000 to this year’s $2,100.

Other factors that decreased refunds include the expiration of the mortgage insurance premium deduction and the loss of the above-the-line charitable deduction.

Lower refunds could impact low-income families the most. Joanna Ain, associate director of policy at Prosperity Now, said that refunds can constitute up to 30% of a low-income family’s annual income. Ain also remarked on the “poor timing” of the loss of expanded support amid the inflation.

According to a LendingTree survey, 46% of Americans used their refunds to increase their savings, 37% lowered their debt, and over 20% paid necessary household expenses. Only a small percentage of Americans used their refunds toward a vacation, splurging on unnecessary purchases, or investing.

Source: Aol.com