What’s causing fewer people to receive tax refunds this year?
Published on May 20, 2024
by Jefferson Clemente, EA
Jefferson Clemente, a CPA tax professional with 11 years of expat tax experience, specializes in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working abroad.
Table of Contents
The factors contributing to this include adjustments in tax brackets, modifications in tax laws, and broader economic shifts such as inflation rates and changes in the labor market.
How have tax refund trends changed over recent years?
In recent years, the patterns in tax refunds have shifted noticeably. A comparative analysis of current data against historical figures reveals a downward trend in the number of refunds issued. Let’s take a look at the table for the past four years:
| Year | Number of Refunds Issued (Millions) | Total Refunds Amount (Billions) | Average Refund | Source |
| 2021 | 48.5 | 144.6 | US$2,815 | IRS 2021 |
| 2022 | 49.2 | 173.3 | US$3,536 | IRS 2022 |
| 2023 | 43.3 | 130.7 | US$3,028 | IRS 2023 |
| 2024 | 40.5 | 116.6 | US$2,878 | IRS 2024 |
What legislative changes might be influencing tax refunds?
Recent legislative changes have a significant impact on tax refunds, and several of these listed from recent tax reforms could be influencing the decline in refund sizes:
- Adjustment of Tax Brackets and Rates: The Tax Cuts and Jobs Act (TCJA) of 2017, which continues to influence tax filings, adjusted both the tax brackets and the rates.
- Increase in the Standard Deduction: The TCJA nearly doubled the standard deduction. This significant increase means fewer taxpayers itemize deductions, which affects the size of their tax refunds.
- Cap on State and Local Tax (SALT) Deductions: Another legislative change that has impacted refunds is the $10,000 cap on deductions for state and local taxes, which came into effect with the TCJA.
- Changes to Child Tax Credit and Earned Income Tax Credit: Legislative changes have also temporarily expanded credits like the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC) during the pandemic. However, as these expansions have begun to phase out or revert to their pre-pandemic levels, the size of refunds associated with these credits may decrease.
- COVID-19 Related Legislation: Various COVID-19 relief measures, including stimulus payments and adjustments to unemployment benefits taxation, also had a temporary impact on tax refunds. As these measures expire, taxpayers may notice differences in their refunds.
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How are reduced refunds affecting household budgeting and financial planning?
It’s affecting them quite a bit. Households may need to adjust their financial strategies significantly in response to smaller refunds. This could involve revising monthly budgets to accommodate lower-than-expected funds, delaying large purchases, or revising savings goals.
Should I hire a tax professional to help me with my refunds?
Absolutely. A skilled tax advisor can help identify deductions and credits that expats might not be aware of, all of which can significantly reduce the amount of taxable income and potentially increase the size of your refund.
Not only that, if you’ve discovered errors in previous years’ tax returns or have unfiled taxes, a tax professional can help address these issues. They can assist in filing amended returns and negotiating with the IRS and other tax authorities to resolve any potential disputes or penalties.
What do experts say about future tax seasons?
Looking ahead, experts from the fields of economics and tax planning offer various predictions on future tax seasons
Economists suggest that tax policies may continue to evolve in response to the economic impacts of the pandemic. This could involve more changes in tax laws to stimulate economic growth or address deficits.
Additionally, with increasing globalization, international economic trends may have a greater impact on domestic tax policies.
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