Taxpayers across the United States may be in for an unpleasant surprise this year as it has been reported that tax refunds are set to shrink. The Associated Press recently tweeted out a warning, stating “Expecting a tax refund? It could be smaller than last year. And with inflation still high, that money won’t go as far as it did.” While this news may come as a shock to some individuals already struggling financially, it is not entirely unexpected.
According to the most recent IRS data, the average refund is projected to be $2,910 which is down from last year’s average of $3,226 – a difference of over $300. This decline can partly be attributed to changes made in response to President Trump’s 2017 tax reform law. These reforms caused the government to adjust and alter withholding tables resulting in taxpayers receiving more take-home pay throughout the year but ultimately reducing their refunds.
The decrease in refund amounts will impact many Americans who rely on them for various expenses such as paying off debt or making large purchases like cars or home appliances. Moreover, with inflation rates remaining high across several sectors like housing and healthcare costs increasing annually by nearly 5%, people will find themselves having less spending power than they did last year despite receiving similar sized checks from Uncle Sam.
This trend follows years of fluctuation in terms of refund sizes; however, it marks one of the largest declines seen over recent times. In 2019 after initial reports suggested that refunds were decreasing due largely in part because of new withholding tables adopted under President Trump’s Tax Cuts and Jobs Act (TCJA), there was concern among taxpayers about whether they would receive any money back at all when filing their taxes.
While some experts argue that lower refunds are beneficial because they mean taxpayers have kept more money throughout the year instead of giving an interest-free loan to the government via excess withholdings- others worry about how these decreases will affect consumer spending and the overall economy.
As people begin to receive their tax refunds this year, it remains to be seen how these smaller amounts will impact consumer spending and the US economy as a whole. Nonetheless, taxpayers should be prepared for lower refund checks than they may have expected, and adjust their budgets accordingly.