Tax refunds still 11% smaller than last year with a month left in the filing season
Tax refunds remain markedly smaller than the same time a year ago with only a month left in the filing season, according to the latest data from the Internal Revenue Service, an outcome that many tax experts expected.
Still, the IRS has distributed more tax refunds than last year and a greater share of processed returns yielded a refund.
The average tax refund amount was $3,028 as of Mar. 3, down 11% from $3,401 the same period last year, the IRS reported. That’s based on nearly 42 million refunds the agency has distributed this year, versus nearly 38 million refunds disbursed last year. About 77.4% of processed returns got a tax refund this year, up from 71.6% last year.
Since the beginning of tax season, the average refund has been about 11% lower than last year, based on the weekly filing statistics, highlighting that the loss of several pandemic-era tax breaks means a smaller, key windfall for many American households.
“With the loss of the Child Tax Credit and Earned Income Tax Credit expansions, families and individuals are receiving smaller refunds this tax season,” Joanna Ain, associate director of policy for nonprofit Prosperity Now, told Yahoo Finance. “On average, a household pays $220 per tax return in order to file. In addition, low-income households often end up paying more for filing taxes due to the charges applied to the extra forms needed to claim tax credits.”
Loss of pandemic breaks
The average refund last year was 14.3% higher than in 2021, with the increase largely because of enhancements to the Child Tax Credit (CTC), Earned Income Tax Credit (EITC), and Child and Dependent Care Credit temporarily enacted by the American Rescue Act. Those credit amounts are back to pre-COVID levels.
For example, the CTC declined to $2,000 per child dependent versus last tax season’s $3,600. It’s also not fully refundable anymore, meaning taxpayers won’t receive the full credit if it exceeds the amount of tax they paid — hitting the lowest-earning families the most.
The maximum EITC amount that single filers with no children are eligible for is $500 this year. Last tax season, these filers got as much as $1,502 for the credit, which also had a higher income threshold then.
The Child and Dependent Care Credit — which covers out-of-pocket expenses for child care and day camps — was reduced this year to $2,100 compared with last year’s $8,000.
The loss of the above-the-line charitable deduction and the expiration of the mortgage insurance premium deduction also could factor into lower refunds.
However, lower stock gains — or even losses — that some households experienced last year may help compensate for those lost credits.
“One other factor for 2022 is that the amount of reportable capital gains generated are drastically smaller than last year, which is representative of the market volatility experienced in 2022,” Tom O’Saben, director of tax content and government relations at the National Association of Tax Professionals (NATP), told Yahoo Finance. “Lower capital gains result in lower tax obligations, which help to offset the loss of pandemic-enhanced credits.”
Uptick in the number of filers
Aside from the state refund tax liability issue early on, it has been a relatively quiet tax season. Even visits to the IRS website are down 18.9% versus last year.
The IRS also appears to be on top of the returns coming in. As of March 3, the agency had processed over 54.3 million tax returns, an increase of 2.4% over the same time a year ago when it got through 53 million returns. More taxpayers are also choosing direct deposit for their refunds, heeding the agency’s advice to get a faster refund.
“I have seen a substantial uptick in the number of non-filers wanting to get their tax obligations in order sooner than later,” O’Saben said. “This could be a renewed fear of audits and understanding that the IRS has no statute of limitations for returns that are not filed and could go back and review circumstances from many years ago if no return exists for the year in question.”
Ronda is a personal finance senior reporter for Yahoo Finance and attorney with experience in law, insurance, education, and government. Follow her on Twitter @writesronda
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