The first wave of tax refunds are down 8 percent on average

The dueling effects of both the shutdown and the new tax law have hit tax filing season hard this year, as new IRS data shows a drop in refunds processed and, most critically, a lower average refund.

Though the IRS’s data sample size was a healthy 16 million-plus returns filed (and 13 million processed), the Treasury tweeted that “reports on reduction of IRS filings & refunds are misleading.”

The effect of the partial government shutdown — which may end up being the first shutdown of the year if a deal cannot be reached by Feb. 15 — is only temporary, as returns will eventually be processed.

Analyst reports from DataTrek, Goldman Sachs, and others note the IRS’s change in processed returns vs. this time last year, a 25.8% drop in refunds processed by Feb. 1, 2019. It’s not just the slowdown in government work: People are sending in refunds later. The number received by February was down 12.4% over 2018, according to IRS data.

RELATED: See how your refund compares to the average tax refund in your state:

 

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Average tax refund in every U.S. state
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Average tax refund in every U.S. state

Texas

Average refund: $3,206

Number of refunds: 10,087,693

Total income tax refunded: $32.3 billion

Louisiana

Average refund: $3,115

Number of refunds: 1,611,412

Total income tax refunded: $5 billion

Connecticut

Average refund: $3,099

Number of refunds: 1,396,609

Total income tax refunded: $4.3 billion

Oklahoma

Average refund: $3,098

Number of refunds: 1,300,577

Total income tax refunded: $4 billion

New York

Average refund: $3,059

Number of refunds: 7,712,210

Total income tax refunded: $23.6 billion

New Jersey

Average refund: $3,013

Number of refunds: 3,479,321

Total income tax refunded: $10.5 billion

Wyoming

Average refund: $2,989

Number of refunds: 214,649

Total income tax refunded: $641.6 million

North Dakota 

Average refund: $2,983

Number of refunds: 277,422

Total income tax refunded: $827.4 million

Florida

Average refund: $2,933

Number of refunds: 7,854,538

Total income tax refunded: $23 billion

Mississippi

Average refund: $2,922

Number of refunds: 1,018,429

Total income tax refunded: $2.97 billion

California

Average refund: $2,911

Number of refunds: 13,594,703

Total income tax refunded: $39.5 billion

Washington D.C.

Average refund: $2,900

Number of refunds: 277,399

Total income tax refunded: $804.5 million

Illinois

Average refund: $2,900

Number of refunds: 4,973,653

Total income tax refunded: $14.4 billion

Maryland

Average refund: $2,861

Number of refunds: 2,329,288

Total income tax refunded: $6.7 billion

Massachusetts

Average refund: $2,850

Number of refunds: 2,704,250

Total income tax refunded: $7.7 billion

Alaska

Average refund: $2,843

Number of refunds: 276,887

Total income tax refunded: $787 million

Nevada

Average refund: $2,830

Number of refunds: 1,111,952

Total income tax refunded: $3 billion

Georgia

Average refund: $2,832

Number of refunds: 3,606,774

Total income tax refunded: $10.2 billion

Alabama

Average refund: $2,802

Number of refunds: 1,650,125

Total income tax refunded: $4.6 billion

Virginia

Average refund: $2,771

Number of refunds: 3,129,030

Total income tax refunded: $8.7 billion

Arkansas

Average refund: $2,759

Number of refunds: 989,288

Total income tax refunded: $2.7 billion

Tennessee

Average refund: $2,726

Number of refunds: 2,465,816

Total income tax refunded: $6.7 billion

Utah

Average refund: $2,681

Number of refunds: 1,033,141

Total income tax refunded: $2.8 billion

Washington

Average refund: $2,681

Number of refunds: 2,749,362

Total income tax refunded: $7.4 billion

Arizona

Average refund: $2,672

Number of refunds: 2,244,925

Total income tax refunded: $6 billion

Kansas

Average refund: $2,665

Number of refunds: 1,044,275

Total income tax refunded: $2.8 billion

New Mexico 

Average refund: $2,657

Number of refunds: 724,549

Total income tax refunded: $1.9 billion

South Dakota

Average refund: $2,651

Number of refunds: 321,372

Total income tax refunded: $852 million

West Virginia

Average refund: $2,649

Number of refunds: 649,049

Total income tax refunded: $1.7 billion

Kentucky

Average refund: $2,648

Number of refunds: 1,590,274

Total income tax refunded: $4.2 billion

Delaware

Average refund: $2,648

Number of refunds: 365,749

Total income tax refunded: $968.4 million

Rhode Island

Average refund: $2,643

Number of refunds: 436,490

Total income tax refunded: $1.1 billion

Pennsylvania

Average refund: $2,643

Number of refunds: 5,071,264

Total income tax refunded: $13.4 billion

Colorado

Average refund: $2,636

Number of refunds: 2,014,233

Total income tax refunded: $5.3 billion

North Carolina

Average refund: $2,629

Number of refunds: 3,580,471

Total income tax refunded: $9.4 billion

Nebraska

Average refund: $2,615

Number of refunds: 711,103

Total income tax refunded: $1.8 billion

Indiana

Average refund: $2,612

Number of refunds: 2,577,994

Total income tax refunded: $6.7 billion

Iowa

Average refund: $2,602

Number of refunds: 1,141,151

Total income tax refunded: $3 billion

New Hampshire

Average refund: $2,602

Number of refunds: 558,359

Total income tax refunded: $1.4 billion

Missouri

Average refund: $2,601

Number of refunds: 2,220,029

Total income tax refunded: $5.7 billion

South Carolina

Average refund: $2,569

Number of refunds: 1,719,299

Total income tax refunded: $4.4 billion

Hawaii

Average refund: $2,564

Number of refunds: 535,763

Total income tax refunded: $1.4 billion

Michigan

Average refund: $2,560

Number of refunds: 3,776,668

Total income tax refunded: $9.7 billion

Ohio

Average refund: $2,517

Number of refunds: 4,570,589

Total income tax refunded: $11.5 billion

Minnesota

Average refund: $2,516

Number of refunds: 2,112,212

Total income tax refunded: $5.3 billion

Idaho

Average refund: $2,457

Number of refunds: 561,133

Total income tax refunded: $1.4 billion

Wisconsin

Average refund: $2,436

Number of refunds: 2,236,886

Total income tax refunded: $5.4 billion

Montana

Average refund: $2,401

Number of refunds: 372,817

Total income tax refunded: $895 million

Oregon

Average refund: $2,398

Number of refunds: 1,431,924

Total income tax refunded: $3.4 billion

Vermont

Average refund: $2,392

Number of refunds: 254,192

Total income tax refunded: $608 million

Maine

Average refund: $2,336

Number of refunds: 509,896

Total income tax refunded: $1.2 billion

Average tax refund by state
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The other major factor this year, the new tax bill’s first return season, could yield unpleasant surprises. The tax law and the shutdown together are seen by accountants as the “perfect tax storm.”

So far, the average refund amount is down 8.4% compared with last year at the same time, from $2,035 to $1,865. (The average refund between 2014 and 2018 was around $2,700.)

The biggest question this tax season is how exactly the tax bill has affected everybody. Thanks to lower tax rates and a higher standard deduction, many people expected “historic TAX CUTS,” promised by President Trump. But this may not be the case, mainly because the Tax Cut and Jobs Act limited deductions for state and local taxes (known as SALT).

In terms of what this will do for the average refund, some analysts, like DataTrek, expect the historic average will be the same, as the lower rates balance out the SALT change. (The top tax rate is now 37%, down from 39.6% in 2017.)

But some people may not have changed their withholding to account for these changes, which DataTrek says could be in the millions. On top of that, withholding tables that the IRS provides to help people withhold enough so they are not saddled with a tax bill in the spring may not have been aggressive enough, which could provide another tax surprise, even if it doesn’t affect the final number.

It’s still too early to tell whether the withholding was a problem. More than 35% of all tax returns processed so far had resulted in a refund this year. At this time last year, it was 34.4% — essentially the same.

Since more complicated taxes take longer, many of the questions economists, accountants, and taxpayers want answered will emerge over the coming weeks as returns trickle in and refunds — and bills — trickle out.

DataTrek analysts’ best guess is an average refund that’s similar to the recent norm of around $2,700. But because of the changes, higher-income taxpayers and those in states with higher state and local taxes (mostly on the coasts) will likely write bigger checks to the IRS.

While surveys generally show people spend tax refunds on paying down debt or making a big purchase, Datatrek warns that these numbers could affect retail and other discretionary spending in states with higher state and local taxes. This could change the timing as well, Goldman Sachs analysts noted, as refunds may not have their traditional February bump, instead hitting bank accounts — and then stores — in March.

Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, personal finance, retail, airlines, and more. Follow him on Twitter @ewolffmann.

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