Average Tax Refund Is 29% Smaller in 2024 — What This Means for You
Tax season is in full swing and, though many people have yet to file, the IRS has already put out an initial report about how things are going. According to this report, the average 2024 tax refund is $1,395 — about 29% smaller than the average refund last year.
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While there’s still time for this statistic to change, the smaller tax refund could be an indicator of recent or ongoing economic changes. It could also impact someone’s finances in the short- and long-term.
So, what could be responsible for this lower refund amount, and what might it mean for the average worker? Here’s what you should know.
The Data Is Preliminary
Before putting too much stock into the statistics, it’s important to remember that this is preliminary data. The tax refund amount is based on five days’ worth of information as opposed to last year when it was based on 12 days.
Many people still haven’t filed their taxes this year, so the numbers could easily change. So, if you’re waiting to file, know that your tax refund could be higher than the average — depending on your income, withholdings and other individual factors.
Tax Credits Have Changed — But Not Everyone’s Filed
Since tax season doesn’t end until April 15, there’s still plenty of time for people to file their taxes or claim certain deductions or tax credits.
In some cases, such as with the earned income tax credit (EITC), qualifying individuals won’t receive a refund until February 27 or beyond. This could change the average tax refund amount significantly.
Along with this, tax legislation changes frequently. Certain tax credits that existed in previous years have expired or are smaller than before.
“It’s true that this tax season could see smaller refunds compared to earlier years. It may happen due to the expiration of certain additional credits and stimulus payments,” said Ines Zemelman, accredited enrolled agent (EA) and founder and president at TFX.
“For example, the Child Tax Credit, the Earned Income Tax Credit and the Child and Dependent Care Credit have returned to their pre-pandemic levels. This is why it’s likely that we’ll see a decrease in the amount of a tax refund.”
If you haven’t filed yet, check the different tax credits you’re eligible for and claim them on your federal tax return. You could increase your refund this way, giving you more cash for other short- or long-term needs and goals.
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Withholding Changes Could Affect the Average Tax Refund
Throughout the year, workers pay money to the IRS via paycheck withholdings. If you receive a smaller tax refund than usual, it could mean that you didn’t withhold enough during the year. On the other hand, receiving a larger refund means you overpaid in taxes.
“Adjustments to withholding might influence the size of [your] refund,” said Jonathan Rosenfeld, founder and managing attorney at Rosenfeld Injury Lawyers. He added that individuals who didn’t have enough taxes withheld from their income, perhaps due to changes in withholding allowances or income chances, could see a smaller refund.
If your income increased over the year, it could be a sign of career growth and give you extra money during the year to pay your everyday expenses — like groceries, gas, rent or loans.
Tax Brackets Changes Could Impact Tax Refund Amounts
The IRS adjusts income tax brackets fairly regularly. In 2024, for example, the standard deduction for married couples filing jointly is $29,200 — $1,500 higher than it was in 2023.
Depending on your income amount, your tax refund could be smaller or larger.
“One significant change this tax year is the expansion of federal income tax brackets (an approximate 7% increase).” said Zemelman. “Tax brackets are adjusted for inflation to prevent ‘bracket creep,’ where a taxpayer would move into higher tax brackets due to inflation and not real increases in income.”
“If your income remains the same as the previous year, you could find yourself in a lower tax bracket with a lower tax rate in 2023 (for taxes filed in 2024) compared to 2022 (for taxes filed in 2023),” he continued. “For example, if you’re a single filer with a taxable income of $90,000 in both the 2022 and 2023 tax years, you’ll face a 22% tax rate this year instead of the previous 24%. As a result, you could potentially get a larger tax refund.”
What a Smaller Refund Means for the Average Worker
Getting a smaller refund could be either a good or a bad thing. Here’s what it might mean for the average working person.
Financial Stress or Delayed Plans
With the cost of living so high in many parts of the country, a smaller tax refund could result in short- or even long-term financial stress — especially for the average employee.
“If you count on your tax refund to pay off your loan or credit card debt, a lower refund could lead to a financial strain in the short-term, and to further increase your reliance on credit,” said Zemelman.
A smaller refund also means less money available for planned expenses like a family vacation or home renovations. If you’re relying on that money to cover a specific expense, you might have to delay your plans.
More Money Throughout the Year
Inflation has somewhat stabilized, but the cost of everyday goods and services is still high. And if you’re already struggling to make ends meet, chances are you need every dollar you earn.
“Immediately, a smaller refund might sting, especially if you had plans for that money,” said Jeff Rose, Certified Financial Planner (CFP) and founder of GoodFinancialCents.com. “But there’s a silver lining… a smaller refund means you’ve been getting more of your money in your paychecks throughout the year, giving you the freedom to use it when you needed it most.”
Depending on how you’ve budgeted and planned your finances, you could end up having more cash throughout the year for things like debt payoff, bills or extra spending. This means you don’t have to wait until you file taxes and the IRS processes your return to get the money when you might be better off with it in the moment.
Signs of Better Financial Planning and Long-term Growth
“Over time, consistently receiving smaller refunds could signify better financial planning and management,” said Rosenfeld. “It suggests that [you’re] not giving the government an interest-free loan throughout the year and instead have more control over [your] money.”
You can use that money to improve your overall financial situation throughout the year instead of waiting for the IRS to return the excess to you. And if you have a little extra, you can start working toward long-term financial goals, like retirement planning.
“A smaller refund can also lead to opportunities for financial growth in the long-term,” said Zemelman. “You might want to start tax planning and look for wiser ways to use your tax refund such as maximizing contributions to your IRAs or 401(k) accounts. Note that the contribution limits for these accounts have increased this year — you can boost your retirement savings and get a higher tax deduction.”
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