IRS Tax Refund Shrinking Uncover the 11% Drop’s Surprising Cause

Delve into the Factors Behind Smaller Tax Refunds and What It Means for You

IRS Tax Refund Shrinking Uncover the 11% Drop's Surprising Cause|IRS Tax Refund Shrinking Uncover the 11% Drop's Surprising Cause

As of mid-March, the IRS has issued approximately 53 million tax refunds; however, certain taxpayers may be in for an unpleasant surprise. As the 2023 tax season draws to a close in a few weeks, the Internal Revenue Service (IRS) is cautioning taxpayers to anticipate a reduction in their refunds this year. According to the IRS, it has distributed roughly 53 million refunds totaling $158.1 billion as of March 17. The average amount of refund checks this year is $2,933, which is approximately 11% less than last year’s average of $3,305.

The reduction in the size of IRS refunds can be worrisome for millions of Americans who rely on the influx of funds from the government to make significant purchases, save for retirement, or pay down debt. Furthermore, millions of taxpayers are still grappling with the most severe bout of inflation in a generation, which has caused the prices of essential items such as food, rent, and gasoline to skyrocket.

The Internal Revenue Service (IRS) has released 12 million tax refunds after rectifying the unemployment benefit break for 2020

According to a Bankrate survey, approximately 75% of adults who anticipate receiving a tax refund this year believe that the funds are critical to their overall financial situation. Of that number, 43% consider the refund to be “very important,” while 32% view it as “somewhat important.” This figure is roughly 10 percentage points higher than in 2022 when only 67% of Americans intended to rely on their refund.

IRS Tax Refund Shrinking Uncover the 11% Drop's Surprising Cause
IRS Tax Refund Shrinking Uncover the 11% Drop’s Surprising Cause

The primary reason for the decline in refund amount is the absence of additional tax credits or pandemic-related stimulus payments issued by the federal government in 2022. In 2021, the IRS distributed a third round of stimulus payments worth up to $1,400 per person, and eligible individuals could claim any unpaid funds on their tax return.

Anticipating a tax refund?

According to Ted Rossman, a Senior Industry Analyst at Bankrate, it is logical to anticipate that many individuals will receive reduced tax refunds this year. He stated that this is mostly due to the expiration of several pandemic-related tax benefits such as stimulus payments, the expanded child tax credit, and the expanded child and dependent care credit.

In general, taxpayers receive a refund if they had excessive tax withholdings and paid more taxes than owed in the preceding year. For numerous households, the refund amount can be significant. In 2022, nearly 75% of filers received a tax refund, with an average value of around $3,176, which is higher than the $2,800 average in 2021.

In a news release last November, the IRS cautioned that refunds could be smaller in 2023. The agency stated that taxpayers would not receive any extra stimulus payments with their 2023 tax refund since no economic impact payments were made in 2022.

This year, the tax-filing season concludes on Tuesday, April 18. Even if the IRS grants you an extension to file your taxes, you must still pay any taxes owed by April 18; otherwise, you may incur penalties and interest on the outstanding balance.

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