Millions of Americans waiting for their refund checks could be disappointed, as early data shows that average workers are receiving 29 percent less in tax refunds from the Internal Revenue Service (IRS) this year.
The average refund check through Feb. 2 is worth $1,395, according to statistics released by the IRS on Thursday. This amount is significantly less compared to the $1,963 received on average last year.
Despite the notable reduction in the average refund issued this year so far, the IRS does not seem alarmed, noting that the average refund amount is likely to change in the coming months.
Tax season began on January 29 of this year, and as of February 2, the IRS has only been processing returns for five days.
The 2023 filing season began on Jan. 23 of last year, giving the agency an extra week to receive and issue refunds at the same time.
Despite the notable reduction in the average refund issued this year so far, the IRS does not seem alarmed, noting that the average refund amount is likely to change in the coming months.
The IRS said in a statement: “Considering the 7-day loss in this comparison, the filing season statistics below show a good start to the 2024 filing season, with all systems working well.”
Daniel Rahill, a certified public accountant in Chicago, said early filers may receive smaller refunds because those who earned higher salaries in 2023 did not increase their tax withholding accordingly.
“It will be an interesting analysis to see where the next wave of numbers will land once we receive more data on tax returns,” he said. USA Today.
Some tax experts also suggest that refunds could be much larger than last year, estimating an increase of about $300 to $400.
‘Anyone whose income has not outpaced inflation should do better. It’s not even voodoo or marketing spin, it’s pretty much science,” Mark Steber, Jackson Hewitt’s chief tax information officer, told FOX Business.
The amount Americans have received in refunds has increased year over year, according to data from the Internal Revenue Service (IRS). For the 2022 season, the typical taxpayer recovered $3,012.
A refund is money you overpaid to the IRS through withholding from your paycheck, which the agency has been holding until you file your tax return.
Rebecca Chen, a reporter and CPA, told Yahoo! Finance experts said they warn that Americans must change their attitude toward tax refunds.
A refund is money you overpaid to the IRS through withholding from your paycheck, which the agency has been holding until you file your tax return.
Experts warn that while a refund may seem like a windfall, overpaying taxes means losing use of the money for the year.
They say it could be spent on family and friends during the holidays, or invested to increase its value. At the same time, too much advance taxation provides the IRS with an “interest-free loan.”
“Experts say we need to change our mindset about tax refunds and remind ourselves that it’s our money to begin with,” said Rebecca Chen, a reporter and CPA. Yahoo! Finance.
“And when you have too many withholdings with the government, it’s essentially like giving them an interest-free loan all year long.”
This is quite important, he added, because we live in an environment of very high interests and high debt.
At its last meeting last month, the Federal Reserve kept interest rates at a 22-year high between 5.25 and 5.5 percent, where they have been since last July.
Some experts warn that while a refund may seem like a windfall, overpaying taxes means losing funds you could have had throughout the year to save or invest.
The amount Americans have received in refunds has increased year over year, according to data from the Internal Revenue Service (IRS).
This has a knock-on effect on mortgages and credit card loans. The average credit card interest rate has soared above 24 percent, according to Loan tree.
If you’re one of the people watching your credit card balances rise and seeing debt eating up a lot, Chen said, it doesn’t necessarily make sense to hold money with the government while paying such high interest.
“Reduce your withholding and use that money to pay off your high-interest rate credit card debt and you’ll be better off financially,” he said.
Less being deducted for taxes means you’ll have more in your paycheck each month that you can invest or deposit into a high-yield savings account.
If an average refund of $3,000 were placed in a high-yield account earning five percent interest, this would generate $150 for the entire year.