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.
Certainly! The article you provided delves into the Internal Revenue Service (IRS) refunds, their impact on households' finances, and the economic implications. As an enthusiast in finance and tax matters, let's break down the concepts mentioned in the article:
-
IRS Refunds: These are the amounts repaid to taxpayers when they've overpaid taxes or are eligible for tax credits, resulting in a refund from the government.
-
Average Refund Amount: It's the total refund amount divided by the number of taxpayers, giving the average refund per person. The decline from the previous year, such as the $360 decrease mentioned in the article, suggests changes in tax policies or economic conditions affecting refund amounts.
-
Financial Impact: Tax refunds significantly impact households' annual budgets, as highlighted by Ted Rossman, the senior industry analyst at Bankrate. Refunds are considered a substantial financial boost for many households and can influence spending plans.
-
Importance of Refunds: The article mentions a Bankrate survey indicating that a considerable percentage of respondents consider tax refunds crucial for their financial well-being. This sentiment is tied to the impact of refunds on managing debt, savings, and general financial health.
-
Factors Affecting Refund Amounts: The expiration of pandemic-era federal payment programs, such as stimulus checks and child-related tax credits, affects the size of tax refunds. The IRS forecasted lower refund amounts for the year due to these changes.
-
Refund Utilization: Historically, households have used refunds to pay off debts or bolster savings, as opposed to spending on discretionary items. This behavior can influence broader economic trends like inflation.
-
Refund Impact on Inflation: Lower refund amounts might potentially contribute to curbing inflation. If households receive less money than anticipated, they might reduce spending, aligning with the Federal Reserve's goal to lower inflation.
-
Taxpayers' Strategy: Ted Rossman advises taxpayers to adjust their withholding amounts. By doing so, they can increase their take-home pay throughout the year instead of overpaying taxes and waiting for a refund.
The article provides insights into the intricate relationship between tax refunds, individual financial management, economic trends like inflation, and the strategies taxpayers can employ to optimize their finances. Understanding these concepts is crucial for individuals navigating their taxes and managing their finances efficiently.
