IRS Says Tax Refunds Much Smaller This Year, Average $1,395 Vs. $1,963 Last Year

FILE - In this Sept. 24, 2013 file photo, a sheet of uncut $100 bills is inspected during the printing process at the Bureau of Engraving and Printing Western Currency Facility in Fort Worth, Texas. Nobody knows when exactly, but the day will eventually come when the Federal Reserve nudges its benchmark lending rate from next to zero to something slightly higher. But that doesn’t mean the era of incredibly low interest rates will be over. (AP Photo/LM Otero, File)

Early reports from the IRS indicate that this year’s tax refunds are significantly smaller than those issued at the same time last year. As of February 2, the average refund amount stands at $1,395, showing a sharp decrease of 29% from last year’s average of $1,963. This data comes from an analysis of nearly 2.6 million refunds that total approximately $3.65 billion.

Despite these initial observations, the IRS has issued a statement advising that the average refund value may evolve as more tax returns are processed over the coming months. They highlight that these early figures are not definitive and could adjust upwards as the tax season progresses.

A contributing factor to the current lower average may be related to specific tax credits. Notably, individuals eligible for the earned income tax credit or child tax credit are legally prohibited from receiving their refunds before mid-February. This delay may distort the initial figures, impacting the average refund reported so far.

The reduction in refund amounts could pose financial challenges for many Americans. Tax refunds often serve as critical financial relief for families, aiding in significant purchases, contributing to savings for retirement, or assisting in debt repayment.

Compounding the strain on taxpayers is the ongoing battle with high inflation, which continues to elevate the prices of essential goods including food and housing. The diminished refund amounts arrive at a time when many are already grappling with tighter budgets and escalated living costs.

Typically, tax refunds are distributed to those who have had excessive tax withheld throughout the year, resulting in an overpayment to the IRS. As the tax season unfolds, it remains to be seen how these averages may adjust and the impact they will have on taxpayers navigating the current economic landscape.