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 lower than expected? ›
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 are refunds smaller this year? ›
Reason 1: Changes to your income
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.
How long is the IRS taking to process returns in 2024? ›
The IRS issues most refunds in fewer than 21 days. Some tax returns require more time to review, and this can delay a refund. It takes longer to process a return if: The tax return has errors, requires additional review or is incomplete.
How do you know if your refund is being offset? ›
BFS will send you a notice if an offset occurs. The notice will reflect the original refund amount, your offset amount, the agency receiving the payment, and the address and telephone number of the agency. BFS will notify the IRS of the amount taken from your refund once your refund date has passed.
Why is my 2024 refund so low? ›
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 did the IRS not give me my full refund? ›
Why is my refund different than the amount on the tax return I filed? (updated December 22, 2023) 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.
What is the average tax refund in 2024? ›
Cumulative statistics comparing March 31, 2023, and March 29, 2024.
| Return/Refund category | 2023 | 2024 |
|---|
| Average refund amount | $2,910 | $3,050 |
| Total number of direct deposit refunds | 60,867,000 | 58,126,000 |
| Total amount refunded with direct deposit | $180.748 billion | $181.607 billion |
| Average direct deposit refund amount | $ 2,970 | $3,124 |
8 more rowsMar 29, 2024
Claiming 0 allowances means that too much money will be withheld by the IRS. The allowances you can claim vary from situation to situation. If you are married with a kid, you can claim up to three allowances.
What is the average tax return for a single person making $60,000? ›
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.
The more children you have, the larger the potential credit. In 2024, the maximum EITC ranges from $632 for someone with no children to $7,830 for a family with 3 or more dependent children. The size of your credit depends on your adjusted gross income too.
How long can the IRS hold your refund for review? ›
If the IRS is reviewing your return, the review process could take anywhere from 45 to 180 days, depending on the number and types of issues the IRS is reviewing.
What is the tax Relief Act 2024? ›
Key provisions in the Tax Relief for American Families and Workers Act of 2024. The bill provides for increases in the child tax credit, delays the requirement to deduct research and experimentation expenditures over a five-year period, extends 100% bonus depreciation through 2025, and increases the Code Sec.
Why am I getting so little back in taxes? ›
There are many events that may reduce your refund, including: Starting an additional job (especially self-employment) Getting a significant raise, but your W-4 staying the same. Selling stock, crypto, or other investments.
How do I stop my refund from being offset? ›
Prevent an offset
Pay the full amount listed on the Intent to Offset Federal Payments (FTB 1102). Use the payment coupon included in the letter when you send your check or money order. To make a payment online, visit Payment options .
How do I find out who intercepted my tax refund? ›
If you need more information on the offset, contact the Bureau of the Fiscal Service at 800-304-3107 (or TTY/TDD 866-297-0517) to find out where Treasury applied your tax refund.
What if refund check is less than expected? ›
Refund less 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.
How to get a bigger tax refund? ›
Here are four simple ways to get a bigger tax refund according to the experts we spoke to.
- Contribute more to your retirement and health savings accounts.
- Choose the right deduction and filing strategy.
- Donate to charity.
- Be organized and thorough.
The IRS sometimes makes changes because of a miscalculation. The IRS might also believe, based on other information on the return, that you're eligible for a credit you didn't claim. No matter the reason for the change, if you disagree at all, reply to the IRS immediately.
Is a low tax return good? ›
Getting your tax refund to as close to zero as possible is technically ideal. If you do get a big tax refund, be sure to put your windfall to good use. If you have large credit card or other loan balances, you should pay those off first.
