With the 2023 tax season coming to an end in just a few weeks, the Internal Revenue Service is reminding taxpayers to brace for a smaller refund this year.
The IRS said that it has issued about 53 million refunds as of March 17, worth a collective $158.1 billion. The average refund check so far this year is worth $2,933 – about 11% lower compared to the $3,305 average recorded last year.
The decrease in refund size can be concerning to millions of Americans who depend on the influx of money from Uncle Sam to make major purchases, save for retirement or pay off debt. On top of that, millions of taxpayers are still struggling with the worst inflation bout in a generation that has sent the cost of staples like food, rent and gasoline soaring higher.
A recent survey from Bankrate found that about 75% of adults who expect to receive a tax refund this year believe the money is important to their overall financial situation. About 43% said the refund is “very important,” compared to 32% who described it as “somewhat important.” That is about 10 percentage points higher than in 2022, when 67% of Americans planned to rely on their refund.
One of the main reasons for the drop in refund size is that there were no extra tax credits or pandemic-related stimulus payments delivered by the federal government in 2022. In 2021, the IRS delivered a third round of stimulus payments worth up to $1,400 per person. Eligible Americans could claim unpaid funds on their tax return.
“It’s reasonable to expect that many people will receive smaller tax refunds this year,” said Ted Rossman, senior industry analyst at Bankrate. “That’s mostly because many pandemic-related tax breaks have expired: stimulus payments, the expanded child tax credit and the expanded child and dependent care credit, to name a few.”
Taxpayers typically receive a refund if they had too much money withheld and overpaid their taxes the previous year. For many families, the money can be substantial: Nearly three-quarters of filers received a tax refund in 2022, with an average payment worth about $3,176 – up from about $2,800 in 2021.
“Refunds may be smaller in 2023,” the IRS said in a November news release about preparing for the upcoming tax season. “Taxpayers will not receive an additional stimulus payment with a 2023 tax refund because there were no economic impact payments for 2022.”
The tax-filing season ends Tuesday, April 18 this year. Even if you receive an extension from the IRS to file your taxes, you still must pay any money owed by April 18 or face penalties and interest on any amount not paid.
Source: Fox Business