By Naveen Athrappully
The Internal Revenue Service (IRS) is paying $23 billion less in tax refunds for the 2023 filing season—with the average refund amount found to be lower by nearly $300.
The IRS has issued over 69 million refunds collectively worth $198.868 billion for the week ending April 7, 2023, according to the agency’s filing statistics. Compared to the $222.344 billion in refunds handed out in the 2022 season, the 2023 filing season’s refund is $23.476 billion smaller or about 10.6 percent lower.
The average refund amount between the filing seasons has dropped from $3,175 to $2,878, a decline of 9.3 percent or $297. In fiscal 2022, the IRS collected $2.9 trillion in individual income taxes.
Back in January, the IRS had suggested that refund amounts could be smaller this time around. “Due to tax law changes such as the elimination of the Advance Child Tax Credit and no Recovery Rebate Credit this year to claim pandemic-related stimulus payments, many taxpayers may find their refunds somewhat lower this year,” the IRS had said in a Jan. 23 news release.
The U.S. government handed out three rounds of stimulus checks to Americans during the pandemic period. People could claim the missed first and second rounds of stimulus checks on the 2020 tax return. Any missed third-round stimulus checks were claimed in the 2021 return which was filed in the 2022 season.
The federal government had also expanded the Child Tax Credit (CTC) program during the pandemic, boosting benefits per child from $2,000 to $3,600 for children under the age of 6, and to $3,000 for children between the ages of 6 and 17.
The benefits of stimulus payments and CTC have now ended, thereby contributing to a lower refund amount during the 2023 filing season.
Americans Concerned Over Smaller Tax Refunds
Smaller tax refunds pose a major issue for Americans, according to the results of a Bankrate survey published last month. When asked how important the tax refund is to their overall financial situation, 43 percent said that the refunds are “very important” while 32 percent said it was “somewhat important.”
While 79 percent of women said the tax refund was crucial to their financial health, 71 percent of men also held the same view.
Among low-income households whose annual earning is below $50,000, 82 percent see the tax refund as important. This fell to 75 percent among households making between $50,000 and $79,999, and then to 69 percent among those making $80,000 to $99,999.
Thirty-four percent of respondents worry that the tax refund this year “won’t make as big of an impact due to inflation/rising costs.” While 33 percent are concerned the refund will be smaller than usual, 19 percent are worried the refund will be delayed.
As to how they plan on using the tax refund, 28 percent said the funds would be used to pay back debt, 26 percent plan to put the money into savings, and 13 percent expect to use it for day-to-day expenses.
Tax Return Filing Deadlines and Penalties
The deadline for filing 2022 tax returns was April 18. Individuals who have failed to file the returns on time can request a six-month extension. This will give them time till Oct. 16 to file taxes.
“By filing either a return on time or requesting an extension by the April 18 filing deadline, they’ll avoid the late-filing penalty, which can be 10 times as costly as the penalty for not paying,” the IRS said in a statement.
For amounts unpaid beyond the April 18 deadline, the IRS will charge a penalty of 0.5 percent of the tax owed per month, which is capped at 25 percent. The penalty for not filing tax returns on time is 5 percent per month, which is also capped at 25 percent.
Those who have failed to pay on time can apply for a payment plan that will allow them to pay off the tax due in installments.