The IRS is writing smaller refund checks, on average, at the beginning of this year's income tax filing season, according to new numbers from the tax agency.
The average federal income tax refund is $1,395 so far, according to Internal Revenue Service figures released Friday in the filing season that began less than two weeks ago.
This represents a roughly 29% decrease in the size of the average refund year-over-year, compared to the first batch of data on income taxes last year.
But just breathe, taxpayers. There are several reasons why the refund picture is not as bleak as it may seem.
First, the IRS started processing tax returns a little later this year than it did last year. The filing season began on January 29, compared to the beginning of January 23 last year, which means the IRS is not processing as many returns as it did at this point last year. This skews the comparison between refund sizes.
“Given the 7-day loss in this comparison, the filing season statistics… show a strong start to the 2024 filing season, with all systems running well,” the IRS said in a note about Friday’s numbers.
The IRS has received 15.3 million returns so far, which represents a roughly 19% decrease compared to the first round of data last year. With more returns coming in, it's good that the average size of refunds will increase for 2024.
At the start of last year's tax season, the average tax refund was about 11% lower than the previous year. But by the end of the season, the average refund was 2.6% lower, at $3,167.
Despite the slightly late start this year, April 15 is still the deadline to pay any taxes due and file a return or extension.
Another reason to relax about refund sizes: The IRS can't release some refunds until at least February 15, and that also plays into the relatively lower averages released Friday.
Under the Protecting Americans from Tax Hikes Act of 2015, refunds on returns claiming the Earned Income Tax Credit or the refundable portion of the Child Tax Credit are withheld until February 15. The delay is intended to protect against fraud.
The child tax credit pays up to $2,000 per child, and $1,600 of that amount can currently turn into a refund. A bill pending in the Senate would boost the refundable portion to $1,800 of the tax returns people file this year.
Of course, everyone has a different tax situation. There are tax implications associated with changes such as a new baby, a new spouse, or a new source of income.
Here comes the third reason for the money-back reassurance.
These changes can certainly affect the size of an individual's return. But overall, tax preparation experts say, there are no changes in federal law for tax year 2023 that would push refund averages lower than they were the previous year.
The IRS's numbers Friday work on a small sample size, said Tom Osapin, director of tax content and government relations at the National Association of Tax Professionals.
When it comes to refunds in 2023 compared to 2024, “I expect things to be pretty even, barring any changes from Congress,” Osapin said. He noted that changes to the child tax credit will lead to higher refunds on average.
There's another silver lining: If a person's 2023 income doesn't keep up with inflation rates, that will likely lower their tax liability and increase their refund.
The inflation-linked portions of the tax code rose 7% based on the tax returns Americans now collect. Some of the provisions that get adjustments include basic parts of the return such as the standard deduction and income ranges for tax brackets.
Average refunds this year could be 5% to 10% higher after the dust settles on all of this year's returns, according to chief tax information officer at tax preparation firm Jackson Hewitt.
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