Tax refunds shrink even more versus last year, latest IRS data shows
Tax refunds continue to be lower than last year, a disappointing result for many taxpayers, according to the latest weekly data from the Internal Revenue Service.
One bright spot, however, is that the agency’s operations appear to have improved compared to last year.
The average refund amount was $1,997 based on tax returns processed through Feb. 10, down 14% from $2,323 for the same period last year, the IRS reported. Last week, the average refund was 11% lower due to fewer returns. The new figure is based on nearly 13.3 million refunds the agency has distributed this year, up from 8.9 million refunds it distributed at the same time last year.
Tax experts have warned that refunds could be smaller this year as most of the pandemic-era tax benefits have expired.
“We’ve seen a drop in refunds due to the disappearance of the Bigger and Better Child Tax Credit and the disappearance of COVID stimulus funds at the federal and state levels,” Rus Garofalo, founder and president of Brass Taxes, told Yahoo Finance. “Customer expectations are based on their tax results over the past year, not what laws and special regulations have changed over the past year.”
Reasons for the decline in tax refunds
This year, the maximum amounts for the Child Tax Credit (CTC), Earned Income Tax Credit (EITC) and Child and Dependent Care Credit have returned to pre-COVID levels. The American Rescue Act temporarily increased these loans last year.
The CTC dropped to $2,000 per dependent child, compared to $3,600 last tax season. It’s also no longer fully refundable, meaning taxpayers won’t get the full credit if the amount is more than the tax they paid. This hits the families with the lowest incomes the most.
The maximum EITC amount for eligible single filers without children has dropped to $500 this season from $1,502 last year. The Child and Dependent Care Credit — which includes child care and day camp expenses — has been reduced to $2,100 this year from $8,000 last year.
The loss of the excess charity deduction and the phasing out of the mortgage insurance premium deduction could also reduce reimbursements this year.
IRS keeps up
The good news the data shows is that the IRS is not lagging behind. As of Feb. 10, the agency had processed just over 26.6 million tax returns, a 13.6% increase from the same period a year ago, when nearly 23.4 million tax returns were processed.
It has also distributed over 13 million tax refunds, up 48.4% from the 8.9 million refunds it sent out this time last year.
The significant progress bodes well for American taxpayers, who have endured a back-to-back challenging and confusing tax season. Increased funding to increase staff and revamp outdated technology appears to be helping the IRS reduce its existing paperwork and speed up its processing this year.
“The new funding made available to the IRS in President Biden’s Inflation Reduction Act is intended to help the agency emerge from the morass created by a decade of underfunding,” said Steve Wamhoff, the federal policy director of the IRS Institute of Taxation and Economic Policy Yahoo Finance. “And while it’s still too early to make any predictions, what we’re seeing so far seems to match.”
Fewer taxpayers are looking to the IRS website for help, which could mean this year’s tax season is less confusing. Though it’s still early in tax season, 13.4% fewer people visited the IRS website, weekly data shows.
The decline could also mean that taxpayers are getting through with the IRS over the phone, unlike last year.
“In the first few weeks of tax season, we already saw that 89% of calls from taxpayers were answered by IRS agents, and 93% were answered if you count the automated responses,” Wamhoff said, “while last year the IRS could only Answer 13% of calls.”
Avoid unnecessary delays by submitting electronically
The IRS has many weeks left in the 2023 tax season. The agency expects about 168 million individual tax returns to be filed before the April 18 tax deadline.
One easy way to avoid delays is to review and file your tax return electronically – by opting for direct deposit for your tax refund. So far this year, over 94% of the 28.8 million tax returns received have been filed electronically, the IRS found.
“I filed my tax return shortly after the opening was announced,” Eric Bronnenkant, head of tax at Betterment, told Yahoo Finance. “So far, the feedback I’ve received is that the IRS keeps things going.”
Ronda Lee also contributed to this report.
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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