As tax season progresses, the IRS has already disbursed over 2.6 million refunds totaling approximately $3.65 billion as of February 2nd, as reported by the agency last week. Presently, the average refund stands at $1,395, marking a notable decrease from the $1,963 average refund seen one year prior, representing a roughly 29% reduction.
It’s worth noting that since the commencement of the 2024 tax season on January 29th, the average refund calculation is based on only five days of data, compared to twelve days from the previous year, as highlighted by the IRS last Friday. Despite this shorter timeframe, the IRS has indicated that these early statistics indicate a promising start to the 2024 filing season.
Reasons for Potentially Larger Tax Refunds
“This data is extremely preliminary,” remarked Mark Steber, Chief Tax Information Officer at Jackson Hewitt. “It’s important not to draw significant conclusions about an entire year or a tax season spanning 3½ months based solely on five days’ worth of data.” According to the IRS, as of December 29th last year, the average refund for the 2023 filing season stood at $3,167.
Many individuals who typically file early, such as recipients of earned income tax or child tax credits, have yet to file, noted Steber. As per IRS regulations, individuals claiming the refundable portion of the child tax credit or earned income tax credit will not receive refunds until at least February 27th.
Traditionally, a tax refund indicates that you’ve overpaid taxes over the course of the year. Many individuals have taxes deducted directly from their paychecks. Conversely, if you’ve underpaid taxes, you may owe money at tax time.
A tax refund is the return of excess amounts of income tax that a taxpayer has paid to the state or federal government throughout the past year. In most cases, it occurs if the tax liability is less than the total of the tax withheld from the taxpayer’s income plus any estimated taxes paid plus any refundable tax credits that the taxpayer may be entitled to.
Taxpayers often provide financial information to their employers or other income sources, which then use that information to determine the amount of tax to withhold. When you file your annual tax return, you calculate your actual tax liability based on your total income, deductions, and credits. If the amount of taxes you’ve paid throughout the year is more than what you owe according to your tax return, you are eligible for a refund of the difference.
The specifics of how tax refunds are calculated and processed can vary by country, and there are different rules regarding eligibility for refunds, how they’re calculated, and the timeframe in which taxpayers can expect to receive their refund. In many countries, taxpayers can choose to receive their refunds via direct deposit to their bank accounts, as a paper check, or sometimes even applied towards future taxes or other government fees.