Your tax refund could be larger this year

Your tax refund could be larger this year. This is the reason.

Many Americans were shocked last year when the expiration of pandemic-era federal benefits resulted in them getting a smaller tax refund check. This unwelcome surprise raises the question of what taxpayers can expect this year.

The good news: People could see larger refunds this year, with some potentially getting 10% more than the previous year, according to Mark Steber, chief tax information officer at Jackson Hewitt.

Last year, the average tax refund was $3,167, or nearly 3% less than the previous year, according to IRS statistics. By comparison, the typical refund check jumped 15.5% to nearly $3,300 in 2022, when taxpayers received generous tax breaks like the expanded child tax credit.

A smaller tax refund in 2023 proved to be a double whammy for many Americans, who were simultaneously struggling with high inflation that eroded their purchasing power. Tax refunds often represent a household's largest annual cash injection, beyond the average worker's salary, and are often used to pay off debt or boost savings.

How does inflation affect your tax refund?

Inflation could ultimately benefit taxpayers this year. That's because the IRS adjusted many of its provisions in 2023 for inflation, pushing the standard deduction to a more generous level and raising its tax brackets by 7.1% — a historically large adjustment.

"Let's say your income hasn't kept up with inflation — you make the same income you did the year before, but you didn't increase your income at the inflation rate of 7% or so — you could see a better recovery," Steber told CBS MoneyWatch. "We expect higher refunds for these people, up to 10%."

The forecast is based on modeling using last year's tax refund data and inflation adjustments from the IRS for tax brackets, the standard deduction, and other provisions, Steber said.

According to the Bureau of Labor Statistics, the average worker saw their income increase by about 5.5% in 2023. This is lower than the 7.1% inflation adjustment the IRS adopted for many tax rulings last year.

"Many people haven't kept up with inflation," Steber said, predicting that middle- and low-income workers will likely see higher refunds this year.

2024 tax refund calculator

One way to check your refund is to enter your income and other data into a 2024 tax refund calculator, which tax preparation companies like H&R Block and financial sites like Nerdwallet offer.

Of course, not everyone will get a larger tax refund. Steber said more taxpayers may have to borrow this year, especially since more people worked side jobs last year to compensate for higher costs. He noted that some of them may have yet to pay their quarterly self-employment taxes and could owe the IRS by April 15.

"Like anything in the tax world, there are winners and losers," said Mark Geiger, vice president of tax operations at TaxAct.

He noted that homeowners who took advantage of expanded home energy tax credits may receive larger amounts and people whose income has not kept up with inflation.

Given the expansion of the Earned Income Tax Credit, another group that could see larger refunds is low-income families with children. The maximum credit for tax year 2023 is $7,430, up from $6,935 the previous year.

But Geiger warned that Social Security beneficiaries could be exposed to higher taxes. This is because the minimum above which retirees must pay taxes on their Social Security is not adjusted for inflation and remains unchanged since 1984.

When will I get my tax refund?

The IRS will begin the new tax filing season on January 29, meaning taxpayers must file their tax returns between that date and April 15. If you need more time, you can request an extension, which gives you until mid-October to file.

Residents of Maine and Massachusetts have until April 17 to file their taxes due to public holidays, and people living in federally declared disaster areas may have more time to file their taxes.

Most taxpayers receive their refunds within 21 days. People who file their taxes as soon as January 29 should get their payments by February 19.

However, the IRS warns that this is not guaranteed, noting that some returns may take longer to review. The IRS said the best way to check the status of your refund is to visit Where is my refund? On or the IRS2Go app.

0/Post a Comment/Comments