Tax refunds continue to be much lower than they were at the same time last year, with only one month left in the filing season.
According to the most recent data from the Federal Revenue Service, many tax professionals anticipated this outcome. Yet, the IRS has issued more tax refunds than the previous year, and a larger proportion of processed tax returns resulted in a refund.
Standard Tax Refunds
The IRS revealed that the average tax refund was $3,028 as of March 3, down 11% from $3,401 at the same time the previous year. This is based on the agency’s distribution of nearly 42 million reimbursements this year, compared to roughly 38 million returns last year.
This year, around 77.4% of processed tax returns received a tax refund, up from 71.6% the previous year. Since the beginning of tax season, the average refund has been approximately 11% less than last year, according to weekly filing figures, underlining that the elimination of various tax advantages from the era of the pandemic has resulted in a smaller, significant windfall for many American households.
Families and individuals are receiving lesser tax refunds this year due to the loss of the Child Tax Credit and Earned Income Tax Credit extensions, according to Joanna Ain, associate director of policy for the charity Prosperity Now, who spoke to Yahoo Finance. A household pays an average of $220 for each tax return file. In addition, low-income households may spend more on tax preparation due to the fees associated with the additional documents required to collect tax credits.
Loss Of Pandemic Breaks
Increases to the Child Tax Credit (CTC), Earned Income Tax Credit (EITC), and Child and Dependent Care Credit temporarily enacted by the American Recovery and Reinvestment Act led to a 14.3% rise in the average tax refund in 2022 compared to 2021. The credit amounts have returned to their pre-COVID levels.
For instance, the CTC decreased to $2,000 per child dependent from $3,600 last tax season. It’s also no longer entirely refundable, meaning taxpayers won’t receive the whole credit if it exceeds the amount of tax they paid, which disproportionately affects low-income families.
This year, the maximum EITC amount eligible to single filers without children is $500. In the prior tax year, these taxpayers received up to $1,502 for the credit, which also had a higher income threshold.
This year, the Child and Dependent Care Credit, which covers out-of-pocket costs for child care and day camps, was decreased from $8,000 to $2,100.
The elimination of the above-the-line charitable deduction and the expiration of the mortgage insurance premium deduction may also lead to reduced tax refunds.
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Number Of Filers Increased
Apart from the early state refund tax liability issue, the tax season has been largely uneventful. Even visitors to the IRS’s website are down 18.9% compared to the previous year.
The IRS also looks to be on top of incoming tax returns. The agency had handled over 54.3 million tax returns as of March 3, an increase of 2.4% compared to the same time last year, when it processed 53 million returns.
Moreover, more taxpayers are opting for direct deposit for their refunds, heeding the agency’s recommendation for quicker reimbursement.
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