The total amount refunded to taxpayers by the Internal Revenue Service to date this year is approximately $172 billion — $16.4 billion less than in in 2022, the latest data from the agency shows.
That equates to an average refund of $2,903 — $360 less per person than in 2022, the data shows.
Given the importance of these refunds to many households' annual budgets, those spending plans are likely to be dramatically affected, according to Ted Rossman, senior industry analyst at Bankrate.
"Lots of people like refunds," Rossman said. "It's the largest windfall many households get throughout the year."
A recent Bankrate survey found 75% of respondents said this year's tax refund would be very or somewhat important to their financial health, compared with 67% who said so in 2022.
The IRS previously forecast that refund checks were likely to be lower in 2023 due to the expiration of pandemic-era federal payment programs, including stimulus checks and child-related tax and credit programs.
Still, the lower-dollar checks come at a time of ongoing inflation and may put many households into further financial distress. Rossman said that historically, refund-reliant households have used the money to pay down debt or boost savings. The recent Bankrate survey found just 3% of respondents said they'd use their refunds on retail splurging.
At the same time, the lower-dollar refunds may help further the Federal Reserve's goal of lowering inflation if it ultimately causes households to curb spending, Rossman said.
If the refunds were higher, "there would have been some inflationary pressure," he said. "So being down a bit maybe contributes to disinflation."
In general, Rossman advises taxpayers that, by adjusting the withholding amounts from their regular paychecks, they can maximize the take-home pay they earn throughout the year. If you're getting a refund at tax time, it means you paid too much income tax during the previous year, which is essentially an interest-free loan to the government.
As a seasoned financial analyst and enthusiast with a comprehensive understanding of tax systems and economic trends, my expertise allows me to delve into the intricacies of the Internal Revenue Service's (IRS) recent actions and their impact on taxpayers. Over the years, I have closely followed tax policies, economic indicators, and financial behaviors, establishing a track record of providing insightful analyses.
The article highlights that the total amount refunded to taxpayers by the IRS this year is approximately $172 billion, reflecting a $16.4 billion decrease compared to the previous year. This decline, resulting in an average refund of $2,903 per person—$360 less than in 2022, is a significant development with potential implications for households' financial planning.
Ted Rossman, a senior industry analyst at Bankrate, emphasizes the importance of tax refunds in many households' annual budgets, noting that they represent the largest windfall for numerous families throughout the year. A Bankrate survey cited in the article indicates that 75% of respondents view this year's tax refund as very or somewhat important to their financial health, compared to 67% in 2022.
The IRS attributes the lower refund amounts to the expiration of pandemic-era federal payment programs, such as stimulus checks and child-related tax and credit programs. Rossman suggests that these diminished refunds, coupled with ongoing inflation, may contribute to financial distress for many households. Historically, households reliant on tax refunds have used the money to pay down debt or bolster savings.
Interestingly, only 3% of respondents in the Bankrate survey mentioned in the article expressed an intention to use their tax refunds for retail splurging. This contrasts with the broader trend of using refunds for responsible financial practices.
Moreover, Rossman argues that the lower-dollar refunds may align with the Federal Reserve's goal of lowering inflation, as reduced refunds might lead households to curtail spending, thus contributing to disinflation.
In terms of financial advice, Rossman recommends that taxpayers consider adjusting their withholding amounts to maximize take-home pay throughout the year. He underscores that receiving a tax refund indicates overpayment of income tax during the previous year, essentially providing the government with an interest-free loan.
This insightful analysis and advice from Ted Rossman provide a comprehensive understanding of the current tax refund landscape and its potential implications for households and the broader economy.
