Tax refunds shrink even more versus last year, latest IRS data shows

Tax refunds continue to come in lower than last year, according to the latest weekly data from the Internal Revenue Service, a disappointing outcome for many taxpayers.

One bright spot, though, is that the agency’s operations appear to have improved over last year.

The average refund amount was $1,997 based on tax returns processed through Feb. 10, down 14% from $2,323 during the same period last year, the IRS reported. Last week, the average refund came in 11% lower based on fewer returns. The new number is based on nearly 13.3 million refunds the agency has disbursed this year versus 8.9 million refunds it distributed at the same time last year.

Tax experts have been warning that refunds could be smaller this year since most of the pandemic-era tax benefits have expired.

“We have been seeing refunds coming down because of the bigger and better Child Tax Credit going away and the COVID federal and state stimulus money gone away,” Rus Garofalo, founder and president of Brass Taxes, told Yahoo Finance. “Client expectations are based on whatever their tax result was last year, not on what laws and special rules changed over the last year.”

Reasons for tax refund shrinkage

This year, the maximum amounts for the Child Tax Credit (CTC), Earned Income Tax Credit (EITC), and Child and Dependent Care Credit returned to pre-COVID levels. The American Rescue Act temporarily increased these credits last year.

The CTC decreased to $2,000 per child dependent compared with last tax season’s $3,600. It’s also no longer fully refundable, meaning taxpayers won’t receive the full credit if the amount is more than how much tax they paid. That hits the lowest-income families the most.

The maximum EITC amount for eligible single filers with no children fell to $500 this season from $1,502 last year. The Child and Dependent Care Credit — which includes out-of-pocket costs for child care and day camps — was reduced this year to $2,100 versus $8,000 last year.