Early Internal Revenue Service (IRS) data show that tax refunds so far this year are smaller than they were last year, a phenomenon that was predicted by the agency and tax experts.
As of Feb. 3, the average refund amount stood at $1,963, or down about 10.8 percent from the year-ago period, when it was $2,201 on average, the IRS data show.
The agency’s data also show that more refunds have been given out. As of Feb. 3, 6.9 million direct deposit refunds have been reported, compared with 4.46 million for the same time period last year—a 38.7 percent increase year over year.
However, more tax returns have been processed so far in 2023. About 19 million have been processed as of Feb. 3, 2023, compared with the 13 million were processed for the year-ago period, representing a 29 percent increase year over year, according to the agency.
“I would argue that people’s tax refunds are going to be less because of the fact that they are not going to get these special pandemic provisions anymore,” Eric Bronnenkant, the chief of tax at Betterment, told Yahoo Finance in a recent interview. “Obviously, everyone’s situation is unique, but on average refunds are going to be smaller due to less stimulus.”
Other tax experts and the IRS itself has, for months, said that taxpayers should expect smaller returns on their 2022 taxes. The reason why is because certain pandemic-related tax breaks and options aren’t available any longer.
“Refunds may be smaller in 2023,” the IRS warned last November. “Taxpayers will not receive an additional stimulus payment with a 2023 tax refund because there were no Economic Impact Payments for 2022. In addition, taxpayers who don’t itemize and take the standard deduction won’t be able to deduct their charitable contributions.”
The IRS has noted that for 2022’s filing season, the increased Child Tax Credit (CTC), Earned Income Tax Credit (EITC), and Child and Dependent Care Credit applied. But those credit amounts have gone back to the pre-pandemic amounts.
As part of the federal government’s pandemic relief effort, the CTC was expanded from $2,000 per child to $3,600 for each child under the age of six and to $3,000 for children between the ages of six and 17. The American Rescue Plan also made the credit fully refundable, while sending half the credit to families in monthly installments for the second half of 2021. Families were eligible to claim the other half on their 2021 tax returns.
The Child Tax Credit, meanwhile, is no longer refundable, but $1,500 of the credit is still refundable for certain lower-income people who have child dependents.
In a Jan. 23rd news release in announcing the start of the filing season, the tax agency again cautioned that many taxpayers should expect a smaller refund this year due to tax law changes.
“Due to tax law changes such as the elimination of the Advance Child Tax Credit and no Recovery Rebate Credit this year to claim pandemic-related stimulus payments, many taxpayers may find their refunds somewhat lower this year,” the IRS said last month.
For those people who are eligible for a refund, it may take longer. Last year, the IRS warned that some tax returns may require extra time to process this year.
According to the IRS’s website, taxpayers should expect to receive their 2022 tax refund within about 21 days of submitting their return if they file electronically. People applying for the Earned Income Tax Credit or Additional Child Tax Credit will likely have to wait longer, the agency’s website says.
Tom Ozimek contributed to this report.
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