According to the most recent weekly data from the Internal Revenue Service, tax refunds are consistently lower than the previous year, which was anticipated by many tax experts. However, the agency seems to be managing the filing season well, which is a change from previous years. The IRS reported that the average refund amount, based on 53.9 million processed tax returns through March 17, is $2,933, which is 11.3% lower than last year’s $3,305 for the same period when 51.7 million refunds were processed. So far, the IRS has issued $158.1 billion in refunds compared to $171.1 billion last year.
This year, tax experts cautioned that refunds might be lower due to the expiration of most pandemic-era benefits, which is a setback for taxpayers who were depending on that cash influx. Joanna Ain, who is the associate director of policy at the non-profit organization Prosperity Now, stated that it is a significant issue. She said, “Historically, tax refunds have made a huge difference in the lives of families who rely on this kind of income boost each year. With inflation rising, their expenses are also increasing.”
Refunds are lower this year, why?
Several tax benefit enhancements that were introduced under the American Rescue Plan Act have expired this year, including the Child Tax Credit. Last year’s temporary increase of the credit amount to $3,600 per eligible child has reverted to the pre-ARPA amount of $2,000 per child for the 2022 tax year. Furthermore, the credit is no longer fully refundable, which means taxpayers will not receive the full credit if the amount exceeds the tax they paid. These changes have disproportionately affected lower-income households.
This season, the maximum Earned Income Tax Credit amount for eligible single filers without children has decreased to $500, down from $1,502 last year. Additionally, the Child and Dependent Care Credit, which covers expenses for child care and day camps, has been reduced to $2,100 this year from $8,000 last year.
Lower refunds may result from the loss of the above-the-line charitable deduction and the expiration of the mortgage insurance premium deduction. According to Rus Garofalo, founder and president of BrassTaxes, a smaller refund can be concerning for clients. Some clients were informed that they owed more taxes than expected, leading to disappointment.
Faster Processing by IRS
A favorable development this year relates to the way in which the IRS is managing the tax season. According to IRS data, as of March 17, the agency has processed slightly more than 63.1 million returns, marking a 2% increase from the same period last year when it processed 61.9 million returns. Additionally, it has disbursed over 49.1 million refunds, which is an 8.5% increase from 45.3 million refunds during the corresponding time last year.
The recent progress is a major relief for US taxpayers who have struggled through consecutive difficult tax seasons. The infusion of funds to facilitate staff recruitment and upgrade the agency’s outdated technology has evidently contributed to an improved taxpayer experience this year, and has also reduced the prolonged backlog of paper filings that has persisted for two years.
The reduced number of taxpayers seeking assistance on the IRS website may suggest that the current tax season is comparatively less complicated. According to weekly data, the count of people browsing the IRS website has dropped by 20.7% with only three weeks left until the tax deadline on April 18.
Alternatively, the decrease could indicate that taxpayers are now able to connect with the IRS via phone, which was nearly impossible during the past two years. In 2021 and 2022, the IRS only managed to answer 11% and 13% of taxpayer phone calls, respectively.
To prevent avoidable delays, it’s advisable to submit your files electronically
To prevent delays in receiving your tax refund, the IRS recommends verifying your tax return, submitting it electronically, and opting for direct deposit. According to the IRS, around 97% of the approximately 71.7 million tax returns filed this season were filed electronically. The IRS anticipates receiving 168 individual tax returns before the April 18 deadline. The IRS stated last week that electronic filing helps minimize arithmetic errors and detects potential tax credits or deductions that taxpayers may be qualified to claim. Choosing to file electronically and receive refunds via direct deposit is the quickest and most secure approach, according to the agency.