Many Americans thought they were getting a bigger tax refund, study finds
Tax refunds are likely a big letdown this season for a good chunk of Americans, who expected and needed more at a time when their finances are shakier.
Almost half of Americans anticipated they would receive refunds that were the same size or even bigger than last year’s, according to a recent survey from TaxAct, a tax preparation software company. Just 30% expected the smaller refunds that are coming in, which experts had warned about after pandemic-era tax enhancements expired.
The smaller windfalls come as Americans are saving less and as inflation continues to eat into their budgets.
"Refunds are predicted to go down 11% from last year,” said Curtis Campbell, president and CEO of TaxAct, said in a press release. “And it's important for people to be prepared to receive less or even owe money this tax season."
Tax experts have been warning about refund shrinkage this year due to the federal government ending pandemic relief and credits.
So far, the average tax refund is 11% smaller year-over-year as of March 3, the latest stats from the Internal Revenue Service show. And the decline has been consistent since the start of the tax season.
"With the loss of the Child Tax Credit and Earned Income Tax Credit expansions, families and individuals are receiving smaller refunds this tax season," Joanna Ain, associate director of policy for nonprofit Prosperity Now, previously told Yahoo Finance.
The amount of the Child and Dependent Care Credit also reverted to its lower, pre-pandemic value. The above-the-line charitable contribution deduction also wasn’t extended, while the mortgage insurance premium deduction expired.
Tax refunds play a big role in taxpayers' financial wellbeing. The majority of Americans rely on them to catch up or get a boost during tax season, according to Christopher Manderfield, Keybank's executive vice president.
"Somewhere around a quarter of consumers are actually going to save their tax refunds," Manderfield said. "Another roughly 20% are going to use it to pay household bills, and another 20% were actually going to pay off debt."
So, those smaller refunds mean bigger money woes, especially as inflation, in particular, remains a stubborn financial obstacle for everyone.
"Housing, food, services, goods, durable or otherwise just cost more." Manderfield said. "So I don't think the consumer was positioned for that hard of a pivot coming from 2021 to 2022."
Inflation ranked as the top financial concern for most Americans in 2023, according to the TaxAct survey. And a big part of that is because wage growth remains behind for most.
One expert said that because people are paying more for the very basic needs, they have to reduce their savings, retirement plans, and charitable giving to make ends meet.
"The prices of goods and services are rising and people's incomes aren't necessarily rising to match," Akeiva Ellis, a certified financial planner, said. "So naturally, one of [the outcomes is] less savings."
Recent research shows that only 40% of Americans are confident they could come up with $2,000 during an emergency in 2022, an 11 percentage point drop from the prior year, according to a study published by KeyBank, a bank-based financial service company.
The decline “was significant, it was statistically significant,” Manderfield said. “And [it was] the lowest percent that we have seen since the survey started in 2019.”
Rebecca is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
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