Smaller 2023 Tax Refund

Human hand holding out a tiny stack of U.S. dollars.

Surprise! The IRS reports that the average tax refund is 29% smaller compared to last year as of February 2, 2024. This decrease in income tax refunds impacts millions of Americans who rely on them for debt payment or essential purchases. I should note, however, that only about 15% of returns have been filed. Some taxpayers may be waiting a potential increase in the Child Tax Credit, currently pending in Congress. However, the IRS advises taxpayers not to wait, as procedures are in place to adjust credits automatically on already submitted returns.

One reason for smaller refunds is the IRS’s aggressive tax bracket adjustments due to soaring inflation in 2022 and 2023. Tax brackets increased by 7.1% in 2023 and 7% in 2022, causing many taxpayers to move into higher tax brackets. To put that in perspective, the inflation adjustment for 2021 was only 1%.

These significant tax bracket adjustments highlight the importance of monitoring income, tax brackets, owed taxes, and withholdings. This is a tax saving strategy you should practice throughout the year. The IRS has a Tax Withholding Estimator to assess withholding accuracy. Taxpayers can also compare year-to-date income on pay stubs with IRS tax tables and adjust withholdings accordingly to avoid surprises and maximize their tax refund. Keep in mind that other financial events such as retirement savings withdrawals and asset sales will also affect income.

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Gwen Harrison President

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