It’s the start of income-tax-filing season and, believe it or not, the moment can’t come soon enough for many people.
That’s because taxes, for all their drudgery, result in a refund from the federal government for millions of Americans — which is a major money milestone each year.
Tax refunds shrank last year compared with the previous year, but some experts say there’s a glimmer of hope about this year’s refunds: On average, they will not shrink again, they say.
In the big picture, the average refund might even increase after inflation adjustments to the tax code, one expert forecasted.
“We’re expecting bigger refunds this year, I’ll say,” said Mark Steber, Jackson Hewitt’s chief tax information officer. “I’m optimistic and bullish on it.”
He estimated there will be a roughly 5% to 10% increase in the size of the average refund.
But others take a dimmer view. Google
GOOGL,
searches about the size of tax refunds have surged in recent days, with some asking whether refunds will be smaller this year. TikTok videos fretting about lower refunds this year have started to pop up.
The Internal Revenue Service started accepting and processing 2023 income-tax returns on Monday. The tax agency expects to receive more than 146 million tax returns before the April 15 filing deadline.
Here’s what Americans can expect when it comes to their refunds.
How big will your tax refund be this year?
The IRS paid an average $3,167 refund last year, a 2.6% drop from the $3,252 average one year earlier. This year, it may be a different story.
Last year’s decline occurred because generous pandemic-era tax credits that juiced the average refund size on tax year 2021 returns ran dry in the 2022 returns.
This tax year, there were no tax laws expiring or starting that would affect refunds, experts who spoke with MarketWatch said. Moreover, inflation-related adjustments that the IRS makes yearly to tax brackets and deductions are working in favor of higher refunds this year, Steber noted.
Coming off 2022’s four-decade-high inflation rates, the IRS pushed inflation-indexed tax brackets and the standard deduction up by 7% for tax year 2023. That was the largest single-year increase in decades.
If a taxpayer’s income stayed flat or didn’t outpace inflation last year, they should see a smaller tax bill this year thanks to those adjustments, Steber said. The student-loan interest deduction will also be helpful this tax season for millions of borrowers who restarted payments on those loans in 2023 after the pandemic-related pause ended, he noted.
Of course, changes to an individual’s circumstances can also alter a person’s tax situation and the size of their refund or tax bill year over year.
Other experts, including H&R Block
HRB,
President and CEO Jeff Jones, aren’t foreseeing drops in average refund sizes this year. Jones told MarketWatch earlier this month that the average refund size on the earliest returns the tax-prep giant had processed were up year over year — though he cautioned not to read too much into preliminary returns.
A bipartisan tax deal in the works could make the child tax credit more generous for lower-income households this filing season. The House may vote on the bill this week.
Related: Bipartisan deal could boost the child tax credit — but wouldn’t bring back the generous 2021 version. Here’s what it would mean for your taxes.
When will you get your tax refund?
Nine out of 10 households that are owed a refund get it within 21 days, according to IRS Commissioner Danny Werfel. It should come even faster for many people, he said Friday.
The fastest way to get a refund is by filing electronically, as opposed to on paper, and by arranging to have the refund deposited directly into a bank account. More than 90% of individual tax returns are filed electronically, and over 90% are transmitted via direct deposit, IRS statistics show.
This year, more than one-third of people (37%) expecting a refund say they need it to pay for essential expenses like rent and groceries, according to an Intuit
INTU,
Credit Karma survey. Another third say they’ll apply the money to debts including on credit cards, according to the poll, released Monday.
Americans now have $1.08 trillion in credit-card debt after inflation’s feverish climb and stubborn retreat.
How can I track my tax refund?
You can track your refund on the IRS website’s “Where’s My Refund” tracking page, which happens to be the most-visited page on the IRS website, according to Werfel. This year, taxpayers can expect more detailed updates on the status of their refunds, he said.
The status updates will also inform people if they need to respond to IRS letters or questions to get their refund, he said.
It takes 24 hours before the first updates pop up on an e-filed return, and it takes a month on a paper return, according to the IRS.
Who gets tax refunds?
Some taxpayers receive refunds when they overpay taxes throughout the year, which can happen if too much money is taken out of their paychecks for taxes — a situation some observers liken to giving the federal government an interest-free loan. Refunds can also happen as a result of tax deductions and credits that shave away liability.
Last year, the IRS issued more than 105 million refunds, totaling more than $334.8 billion dollars. That’s about two-thirds of the 162 million returns the IRS received last year, IRS numbers show.
People shouldn’t procrastinate filing their taxes, Steber said. A last-minute rush can increase the risk of making mistakes on your return or overlooking certain tax breaks.
Besides, a refund is a big deal, he said. Tax season and the refunds that follow are the “single largest wealth transfer, arguably on the planet, each year,” Steber said.
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