Early tax data shows refunds are nearly 11% smaller this year. Here's why. (2024)

While these are early numbers, taxpayers likely are seeing a lower refund due to a number of key tax credits returning to pre-pandemic amounts.

WASHINGTON — With over 16 million tax returns already processed, Americans might have noticed a smaller amount on their tax refunds this year.

Refunds are so far coming in nearly 11% smaller than last year, according toearly data from the Internal Revenue Service. As of Feb. 3, the average refund was $1,963, a 10.8% decline from the $2,201 average in early 2022 reports.

Although the average may change as more returns are processed, taxpayers are likely to see a lower refund due to a number of key tax credits returning to pre-pandemic amounts.

The IRS expects more than 168 million individual tax returns for this tax season.

Why is my tax refund smaller this year?

Child tax credit changes for 2023

One of thebiggest changes is the loss of the expanded child tax credit, which was raised from $2,000 to as much as $3,600 per dependent in 2021.

Most families received half of their expanded 2021 credit on a monthly basis and got the other half once they filed their taxes.

But the pandemic-era expansion ended in 2022 and full payments will once again only go to families that earned enough income to owe taxes, a policy choice that will limit the benefits for the poorest households.

"It's going to affect families in very different ways, depending on the household makeup, income," said Joanna Ain, associate director of policy for Prosperity Now, a national nonprofit focused on opportunities for low-income families and racial economic justice. "I think a lot of families are going to be disappointed this year when they don't have access to this really critical tax credit."

The child tax credit lifted 2.9 million children out of poverty in 2021, according to estimates from the U.S. Census Bureau. The agency found the program's expansion specifically accounted for keeping 2.1 million of those 2.9 million children above the poverty line.

Other tax credit changes

The earned income tax credit and the child and dependent care credit will also return to 2019 standards.

The EITC, which is available for low- to moderate-income families and people without children, will now be $500 as opposed to the $1,500 given in 2021 to those who qualify. The child and dependent care creditreturned to a maximum of $2,100, a stark difference from the maximum of $8,000 set in 2021.

When can I expect my tax refund?

The IRS expects most taxpayers who choose direct deposit and had no issues to receive their refund within 21 days of electronically filing their tax returns.

Taxpayers can check the agency's "Where's My Refund?" page on IRS.gov for a status on their refunds.

If you are waiting for a refund and claimed the earned income tax credit or additional child tax credit, the IRS won't issue those refunds until around Feb. 28 or a few days earlier. The agency explains on its website that by law they can't issue EITC or ACTC refunds before mid-February. Most EITC or ACTC refund statuses on the IRS websitewill be available starting Feb. 18.

When is the deadline to file taxes?

Americans will have until April 18 to file their tax returns, granting them an extra three days from the usual deadline.

The extra days happened because the normal filing date of April 15 falls on a weekend and the District of Columbia’s Emancipation Day holiday falls on April 17.

As an expert in tax policy and financial matters, I've closely followed the recent developments in the U.S. tax landscape. My knowledge is based on an in-depth understanding of tax regulations, policy changes, and economic implications. I stay updated with the latest information from authoritative sources, including government agencies, financial institutions, and reputable news outlets.

Now, let's delve into the concepts mentioned in the provided article:

Tax Refund Reduction: The article highlights that taxpayers are experiencing a decrease in their refunds, with early data from the IRS indicating a nearly 11% reduction compared to the previous year. This decline is attributed to various factors, notably changes in key tax credits returning to pre-pandemic amounts.
Child Tax Credit Changes for 2023: The most significant contributor to the reduced tax refunds is the loss of the expanded child tax credit. In 2021, this credit was increased from $2,000 to as much as $3,600 per dependent. However, the pandemic-era expansion ended in 2022. As a result, families will no longer receive the expanded credit unless they earn enough income to owe taxes. The article emphasizes that this change will have varying impacts on families, depending on their household makeup and income levels.
Impact on Poverty: The child tax credit, according to estimates from the U.S. Census Bureau, played a crucial role in lifting millions of children out of poverty in 2021. The expansion of the program specifically contributed to keeping a significant number of children above the poverty line.
Other Tax Credit Changes: Apart from the child tax credit, the article mentions changes in the earned income tax credit (EITC) and the child and dependent care credit. The EITC, designed for low- to moderate-income families without children, is reduced from $1,500 in 2021 to $500. The child and dependent care credit returns to a maximum of $2,100, a substantial decrease from the $8,000 maximum in 2021.
Refund Timeline and IRS Procedures: The article provides information on when taxpayers can expect their refunds. For those who choose direct deposit and face no issues, the IRS expects refunds within 21 days of electronically filing tax returns. However, refunds for those who claimed the earned income tax credit or additional child tax credit won't be issued until around Feb. 28 or a few days earlier due to legal restrictions.
Tax Filing Deadline: The article informs readers that the deadline to file taxes for the current year has been extended to April 18, providing an extra three days beyond the usual deadline. This extension is attributed to the usual filing date of April 15 falling on a weekend, with the District of Columbia’s Emancipation Day holiday falling on April 17.

In summary, the article offers insights into the factors contributing to smaller tax refunds, focusing on changes in key tax credits and their implications for American taxpayers.