Did you know IRS tax refunds are lower for tax year 2023 thus far when compared to the same point a year ago? While the IRS just began accepting tax returns for tax year 2023 on January 29 of this year, there is already one troubling statistic according to the IRS: The total number of refunds and the amount of those refunds is much less than the same time last year.
According to the IRS’ “Filing Season Statistics for Week Ending Feb 2, 2024” year-over-year amounts for this year are substantially less than last year at this same time. For example, while the total number of returns processed by the IRS is only just under 17% less than this point last year, the number of refunds is down 67.3%, and the amount of those refunds are down 76.8% year-over-year.
What can we learn from this information, and should we be concerned that IRS tax refunds are lower for tax year 2023 thus far? The IRS seems fairly upbeat, noting “a strong start to filing season 2024, with all systems running well.” So why are the alarm bells sounding?
There haven’t been any significant changes to federal tax laws for the 2023 tax year that would have resulted in across-the-board decreases in IRS tax refunds for US taxpayers.
Initially, we believed it was due to the later start in processing by the IRS. The IRS began accepting returns for tax year 2022 on January 23, 2023 while it did not begin accepting returns for this tax year until January 29, 2024. So, are we just having a knee-jerk response to the fact there have been 6 fewer days of processing?
Initially that may seem to be a reasonable perspective. However, the number of returns processed by this date is only down 16.9%, and the average refund amount to date has dropped 28.9% from $1,963 last year to $1,395 this year. The average direct deposit refund has dropped 25% from $2,056 last year to $1,543 this year. It genuinely appears that IRS tax refunds are significantly smaller this year. What might have happened?
Did the average US taxpayer get a substantial raise without increasing the amount being withheld for income tax? Is this an anomaly based on the suspension of required tax deposits for many filers affected by storms in late 2022 and early 2023? Many were not required to restart estimated tax deposits until early this year.
Or, perhaps US taxpayers are having less withheld as they gain an understanding of the time value of money on hand by reducing withholding amounts versus over-withholding through payroll systems, resulting in a larger tax refund a year later.
The IRS expects to receive almost 130 million 2023 tax returns for individuals and families by this year’s April 15 deadline. There are specific refunds that include an Additional Child Tax Credit or ACTC or the Earned Income Tax Credit or EITC that cannot be disbursed until next week by law.
How should US taxpayers respond to the fact that IRS tax refunds are lower for tax year 2023 thus far than the same point a year ago? Let’s look at last year’s figures. The average return amount this time last year was down 10.9% compared to 2022, yet by the end of the tax season, the average IRS tax refund was only a little more than 2.5% less than the previous year. Changes in child tax credits and actual earnings, when compared with inflation, may help to increase the refund of some tax filers.
Many US taxpayers use their federal tax refund to retire debt or make new acquisitions. Should you be concerned that IRS tax refunds are lower for the tax year 2023 thus far when compared to the same point a year ago? If you haven’t begun to take a look at your final numbers for 2023 and worked through your initial tax return this year it might be best to set lower expectations, and be surprised when the refund amount you qualify for exceeds these initial results.
Will you get less of a tax return than in 2023? Do you need assistance with transactional planning, domestic tax planning or international tax planning to balance gains and losses or to reduce the tax implications of offshore business, investment and income? We invite you to learn more about the integrated tax, legal, accounting and business consulting services of Allen Barron and contact us or call today to schedule a free consultation at 866-631-3470.
