According to recently released IRS data, the average tax refund was only $1,395 as of Feb. 2. At that same point last year, tax refunds averaged $1,963. That’s an almost 29% ($568) difference. This data may sound alarming if you are among the approximately 75% of taxpayers who receive a tax refund. But should you worry about getting a smaller amount back from the IRS in 2024?
Here’s what you need to know.
IRS: Tax refunds about 30% less this year
The 2024 tax season began less than a week before the latest IRS data was released, so the agency had only processed 13,928,000 tax returns at that point. While that number might seem high, it is about 3 million fewer than the 16,767,000 returns processed at the same time last year. There are a couple of things that could account for the 17% difference.
- Tax season started later this year, which could partially account for fewer processed returns.
- Some taxpayers who usually file taxes early may be waiting to file due to the proposed new child tax credit legislation being negotiated in Congress. (Note however, that the IRS has said that people should file their returns when they are ready and not wait on Congress since any necessary refund adjustments will be processed automatically by the IRS.)
The good news is that the average refund amount increased to $1,741 for the week ending on Feb. 9. That's a more than $300 increase from the week prior. And although that amount is still lower than it was at that point last year, taxpayers who are eligible for the earned income tax credit (EITC) won’t receive their refunds until late this month, at the earliest. And given the credit is worth up to $7,430 for the 2023 tax year, average refund amounts will most likely increase further as tax season progresses.
Why your tax refund could be lower than expected
Keep in mind that just because early tax filing data doesn’t accurately reflect 2024 refund amounts doesn’t guarantee your refund won’t be lower this year. Not adjusting tax withholdings on your W-4 Form after experiencing a life change (for example, a change in the number of dependents) can increase your tax liability when you file. And if a dependent turns 17 in 2023, they will no longer be considered a qualifying child for the purpose of claiming the child tax credit (CTC.)
Here are a few more of the many reasons that can cause lower tax refunds (or higher tax bills):
- Making more money (or a spouse making more money, if filing jointly) can reduce the amount of the EITC you qualify for and might even disqualify you from claiming it altogether.
- Having a dependent turn 19 (or 24 if a full-time student) also affects the EITC for some taxpayers.
- Starting a side gig or business and not making enough estimated income tax payments can result in a higher tax bill.
- You could lose out on the child and dependent care credit if you stopped paying for child care in 2023 or if you paid for care for a non-disabled child who turned 13. (A dependent with a disability may qualify for the tax credit, regardless of age.)
Additionally, taxpayers who are still working but started collecting Social Security retirement benefits last year may experience a hike in federal income tax. As Kiplinger has reported, retirees are more likely to pay tax on Social Security benefits when they have other significant income. That’s because the IRS uses your total combined income to calculate tax on Social Security.
Are there ways to get a bigger tax refund?
While you can’t change events that occurred last year, there are still some things you can do to ensure you get the biggest tax refund possible (or lower your tax bill). Of course, you’ll want to make sure you don’t miss any of the often overlooked tax deductions and credits, but eligible taxpayers can take additional steps.
- If you haven’t reached 2023 HSA contribution limits, you have until April 15, 2024, to make contributions for the 2023 tax year. (This date may be different for states with IRS tax deadline extensions.)
- The 2023 contribution deadline for traditional and Roth IRAs is also April 15. (Roth IRA contributions are not tax-deductible, but taxpayers with lower incomes might qualify for the Saver’s Credit if they make contributions.)
It’s also important to note that while most people take the standard deduction, some taxpayers benefit from itemizing their deductions. Because individual tax situations differ, working with a qualified tax professional is the best way to ensure you take advantage of every tax break.
