Talking Taxes: Deadlines, bills and refunds
With many Americans still feeling squeezed by inflation, there's some good news now landing in their bank accounts, with the IRS sending average tax refunds that are bigger than a year ago.
The typical tax refund through February 23 stands at $3,213, or a 4% increase from the average refund at the same time last year, according to the most recent IRS data.
Taxpayers were served up a double whammy last year when millions of households who were struggling with still-high inflation received smaller tax refunds due to the expiration of pandemic benefits. For instance, at this time last year, the typical refund was 11% lower than in 2022, IRS data shows.
The rebound in 2024's average refund size is due to the IRS' adjustment of many tax provisions for inflation. The standard deduction and tax brackets were set7% higherfor the 2023 tax year, the period for which taxpayers are now filing their taxes.
Because of that, workers whose pay didn't keep up with last year's high inflation are on track to get bigger tax refunds, with some likely to receive up to 10% more in 2024, Jackson Hewitt chief tax information officer Mark StebertoldCBS MoneyWatch earlier this year.
"Strong inflation in 2022 led to significant inflation-linked tax code adjustments for tax year 2023, resulting in a more generous standard deduction, a larger maximum amount that filers can claim for the Earned Income Tax Credit (EITC), and even higher income thresholds where tax rates take effect — thereby subjecting more income to lower tax rates, all else equal," noted Oxford Economics lead U.S. economist Bernard Yaros in a recent research note about this year's tax refunds.
How Americans use their tax refunds
About two-thirds of U.S. adults believe they'll receive a tax refund, which typically represents a household's biggest annual influx of cash, according to a new study from Bankrate. But rather than use their refunds for splurges, many have serious plans for the cash infusion, with about half planning to use their checks to pay down debt or bolster savings, Bankrate found.
Yet even with the higher average tax refund so far this year, taxpayers are still receiving less than they did two years ago, when the expanded child tax credit and other pandemic-era benefits helped boost the average refund. Still, refunds overall are higher than they were at the same time in the tax season from 2018 through 2021, IRS data shows.
Tax refunds also provide an essential lift to the economy, given that many taxpayers rely on their checks to buy cars, renovate their homes or make other purchases.
"Across the various categories of retail sales, we find the clearest impact from refunds to be on general merchandise stores and used-car dealerships," Yaros added.
To be sure, it's still early in the tax season, as Americans have until April 15 to file their returns, and the typical tax refund could change in the following weeks.
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Aimee Picchi is the associate managing editor for CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports.
