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.
Why is my 2024 refund so low? ›
Take a look at your existing W-4 and your deductions from your last federal tax return. Increase the deductions amount on your W-4 form to meet the amount on your income tax returns. Make sure to look at student loan interest and IRA contributions, which are included in addition to your deductions estimation.
Why is my refund so small this year? ›
This can be due to withholding more tax than you owe from your regular paychecks or overestimating your self-employment taxes. Qualifying for a refundable tax credit may also contribute to your refund amount. When a refundable credit amount exceeds the tax you owe, you receive the leftover credit as a refund.
Why did my federal withholding decrease in 2024? ›
For example, if you made $45,000 in 2023, you would have fallen into the 22% tax bracket for that tax year. But if your income remains at $45,000 in 2024, you'll drop down to the 12% bracket. That means you'll be on the hook for less federal tax next year and will have less money withdrawn from your paycheck.
What to expect for a tax return in 2024? ›
The IRS expects most EITC and ACTC related refunds to be available in taxpayer bank accounts or on debit cards by Feb. 27, 2024, if the taxpayer chose direct deposit and there are no other issues with the tax return.
Is the IRS behind on refunds in 2024? ›
The amount of tax refund money the IRS has sent out continues to pick up, even though the total number of refunds sent so far in 2024 is continuing to lag slightly behind the numbers for the same period in 2023. (Here's how to see the status of your tax refund.)
How long are refunds taking in 2024? ›
What is the IRS refund schedule?
| Filing method and refund delivery method | How long it takes to receive your refund from the time your return is accepted |
|---|
| E-file and direct deposit | 1-3 weeks |
| E-file and check | 1 month |
| Mail in return and direct deposit | 3 weeks |
| Mail in return and check | 2 months |
Feb 21, 2024
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.
Why is my refund so much smaller? ›
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.
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.
Your new year paycheck might have different withholding amounts for federal taxes. Effective Jan 1 2024, IRS has updated the federal tax brackets. The rates remain at 0%, 10%, 12%, 22%, 24%, 32%, 35%, or 37% but the ranges have been adjusted for inflation.
Will tax returns be bigger in 2024? ›
How much is the average refund? So far in 2024, the average federal income tax refund is $3,011, an increase of just under 5% from 2023. It's not entirely unexpected: To adjust for inflation, the IRS raised both the standard deduction and tax brackets by about 7%.
What is the EIC credit for 2024? ›
Earned income tax credit 2024
For the 2024 tax year (taxes filed in 2025), the earned income credit will range from $632 to $7,830, depending on your filing status and the number of children you have.
How much do you get back in taxes for a child in 2024? ›
The child tax credit is a $2,000 benefit available to those with dependent children under 17. For the 2024 filing season, $1,600 of the credit was potentially refundable.
Did they pass the child tax credit for 2024? ›
The bill, called the Tax Relief for American Families and Workers Act of 2024, easily passed the House in February with bipartisan support. But it currently remains mired in the Senate, with Senator Josh Hawley, a Republican from Missouri, telling NBC News earlier this month that the bill is "on life support."
Is it normal for my tax return to be still processing? ›
There are several reasons why your tax return may be delayed: Errors such as an incomplete filing status. Missing information. A need for additional review.
Are tax returns lower in 2024? ›
Bigger tax refunds in 2024
Through the end of February, tax refunds are about 4% higher than last year – although they are still below the recent high of $3,473 in 2022, when pandemic benefits bolstered the typical refund check.
How to get more back on taxes in 2024? ›
To avoid that, here are some strategies to ensure you get the largest refund possible in 2024:
- Select the right filing status.
- Don't overlook dependent care expenses.
- Itemize deductions when possible.
- Contribute to a traditional IRA.
- Max out contributions to a health savings account.
The tax inflation adjustments for 2024 rose by 5.4% from 2023 (which is slightly lower than the 7.1% increase the 2023 tax year had over the 2022 rates). In 2024, the top tax rate of 37% applies to those earning over $609,350 for individual single filers, up from $578,125 last year.
Why is my refund always so low? ›
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.
