At this point, some people have already filed their 2023 taxes. And if you noticed that your refund this year is smaller than it was last year, you're in good company.
As of Feb. 2, the average tax refund this tax season was $1,395. But around the same time last year, the average tax refund was much higher at $1,963.
To be fair, we're only a few weeks into the 2024 tax-filing season, so this year's refunds may catch up to last year's as more tax returns start rolling in. But here's why your tax refund may be smaller this year than in 2023.
Read more: we researched free tax software and put together a list of the best options here
When your income rises
If you earned more money in 2023 than you did in 2022, then you may be in line for a smaller tax refund this filing season. But those earnings don't necessarily have to stem from a job.
One interesting and positive thing that happened in 2023 was that banks started to pay more interest in savings accounts and CDs in the wake of the Federal Reserve's string of interest rate hikes. But you may not realize that interest income is taxable.
Not only do you have to pay taxes on the interest you earn from a savings account or CD, but in that case, you're charged your ordinary income tax rate -- meaning, you're taxed at the highest rate possible based on your bracket.
As a reminder, the U.S. tax system is a marginal one, where your highest dollars of earnings are taxed at a higher rate than your lowest dollars of earnings. For example, if you're single, earning $50,000 this year, your earnings above $47,151 will be subject to a 22% tax rate. Lower earnings will be taxed at a lower rate.
But interest income is taxed as unfavorably as possible. So if you earned a lot in your bank account last year, it could result in a slashed refund.
A smaller refund isn't necessarily a bad thing
The idea of a smaller tax refund may be upsetting. But one thing you should realize is that a smaller refund means you let the IRS hang onto less of your money in 2023.
When you get a refund, the IRS isn't giving you a gift. It's simply returning money of yours it kept from you previously.
So let's say you got a $900 tax refund in 2023 and are only looking at a $600 tax refund in 2024. You might think you're losing out on $300. But in reality, what happened was that you didn't let the IRS keep $300 of your earnings last year when you were entitled to that money.
Of course, a smaller tax refund can be a blow if you count on a larger sum to do things like cover bills and pay off debt. In general, it's best not to make financial plans around a tax refund since it can be difficult to know what that sum will amount to. But still, if you're looking at less money back from the IRS this year, there are different ways you can cope.
One option is to pick up a side hustle and boost your income that way. You could also take inventory at home and try to sell some unwanted items for extra cash. Finally, simply cutting your spending a bit could free up extra money for essential bills.
There's no guarantee that your tax refund will be smaller this year than last year, so don't assume that will be the case for you. But given that the average tax refund is already notably smaller this year than last, it's a possibility to prepare for.
Your best bet, though, is to file your 2023 taxes as soon as possible. That way, you'll know for sure how much money to expect back from the IRS. And from there, you can adjust your financial plans accordingly.
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FAQs
You may be in line for a smaller tax refund this year if your income rose in 2023. Earning a lot of interest in a bank account could also lead to a smaller refund. A smaller refund isn't necessarily terrible, since it means you got paid sooner rather than loaning the IRS money for no good reason.
Why is my refund so much lower this year? ›
Changes to your income last year may play a role in receiving a smaller refund this tax season. Here are some examples: Salary increase: If you got a salary increase last year but neglected to increase your tax withholding, this could lead to a smaller tax refund when you file.
Why is everyone owing taxes this year in 2024? ›
Under-withholding from Your Paycheck
Under-withholding is the #1 reason individuals owe taxes. This occurs when not enough tax is taken out of your paychecks throughout the year.
What to do if your tax refund is lower than expected? ›
If you receive a refund for a smaller amount than you expected, you may cash the check. You'll get a notice explaining the difference. Follow the instructions on the notice. If it's determined that you should have received more, you will later receive a check for the difference.
What day is the IRS releasing EITC refunds in 2024? ›
Most refunds issued in less than 21 days; EITC refunds for many available starting February 27.
Will child tax credit delay refund 2024? ›
This story is part of Taxes 2024, CNET's coverage of the best tax software, tax tips and everything else you need to file your return and track your refund. Note that your refund could be delayed because you claimed the child tax credit or the earned income tax credit, which takes a bit longer to process.
Why is my 2024 refund so low? ›
If a taxpayer refund isn't what is expected, it may be due to changes made by the IRS. These changes could include corrections to the Child Tax Credit or EITC amounts or an offset from all or part of the refund amount to pay past-due tax or debts. More information about reduced refunds is available on IRS.gov.
What is the average tax return for a single person making $60,000? ›
Income tax calculator California
If you make $60,000 a year living in the region of California, USA, you will be taxed $13,653. That means that your net pay will be $46,347 per year, or $3,862 per month.
Why is my refund check so low? ›
If you owe money to a federal or state agency, the federal government may use part or all of your federal tax refund to repay the debt. This is called a tax refund offset. If your tax refund is lower than you calculated, it may be due to a tax refund offset for an unpaid debt such as child support.
Why is my tax refund not the full amount? ›
All or part of your refund may be offset to pay off past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or other federal nontax debts, such as student loans.
The IRS made adjustments due to differences in what is reported to them or adjustments to certain credits and deductions. Your refund is offset as part of the Treasury Offset Program. An adjustment for Federal taxes owed for a previous year.
How much is EIC for 2024? ›
EITC 2024
| Number of children | Maximum earned income tax credit | Max income: Single or head of household filers |
|---|
| 0 | $632 | $18,591 |
| 1 | $4,213 | $49,084 |
| 2 | $6,960 | $55,768 |
| 3 or more | $7,830 | $59,899 |
Apr 18, 2024
2024 tax refund schedule
| Filing method | Refund method | When to expect your refund |
|---|
| E-file | Direct deposit | Within 21 days |
| E-file | Check | Within 21 days, plus about one week for check delivery |
| Mail | Direct deposit | In about four weeks |
| Mail | Check | In about four weeks, plus about one week for check delivery |
Apr 16, 2024
The maximum refundable child tax credit amount was capped at $1,600 per dependent for this past filing season. In tax years 2024 and 2025, the refundable amount would grow to $1,900 and $2,000.
How much do you get per child on taxes in 2024? ›
The child tax credit (CTC)
The Child Tax Credit is worth a maximum of $2,000 per qualifying child.
What are the IRS changes for 2024? ›
For single taxpayers and married individuals filing separately, the standard deduction rises to $14,600 for 2024, an increase of $750 from 2023; and for heads of households, the standard deduction will be $21,900 for tax year 2024, an increase of $1,100 from the amount for tax year 2023.
What is the Path Act 2024? ›
What does the PATH Act mean for my tax refund? The PATH Act mandates that IRS refunds be issued on tax returns claiming the EITC or ACTC after February 14. The additional time helps the IRS stop fraudulent refunds from being issued to identity thieves and fraudulent claims with fabricated wages and withholdings.
Why am I only getting $1 back in taxes? ›
There are lots of reasons why this might happen. In most cases, the IRS takes part of your refund to pay for outstanding government debts you might owe. These include: Overdue federal tax debts.
Why are my federal taxes so low on my paycheck? ›
The amount of tax withheld from your pay depends on what you earn each pay period. It also depends on what information you gave your employer on Form W-4 when you started working. This information, like your filing status, can affect the tax rate used to calculate your withholding.
Why did my tax refund go down when I added another W-2? ›
When you added more income, your tax liability increased, so you saw your refund decrease. The program began by giving you your standard deduction—- which lowered your taxable income. So you are not being taxed on as much of the income on that first W-2. Then you added taxable income--so the refund went down.
States with the largest/smallest average refunds for tax year 2021
| Rank | State | Average refund |
|---|
| 7 | Connecticut | $4,877 |
| 8 | Texas | $4,753 |
| 9 | California | $4,671 |
| 10 | Louisiana | $4,617 |
6 more rowsMar 11, 2024
