Will tax refunds be bigger in 2024?

Tax refunds for last year’s filing season was markedly smaller than previous years. This was not surprising considering the array of tax breaks instituted during the covid-19 pandemic expired, bringing refunds down to more expected levels.

Indeed, the average tax refund for the 2022 filing season was $2,827, down from $3,099 the year prior; a near 9% drop. A major factor in this was the ending of the enhanced Child Tax credit, which offered nearly twice as much money as it does today.

This trend is not expected to continue for the 2023 filing period, however. Analysts are instead predicting the opposite, but refunds will not be growing because of a new range of enhanced tax credits. Inflation, the bane of wallets for the last two years, and how it is calculated may actually help some taxpayers receive better refunds.

“Say your income didn’t keep pace with inflation — you made the same as the prior year but didn’t increase your income by that inflation rate of 7% or so — you could see a better refund,” Mark Steber, chief tax information officer at Jackson Hewitt, told CBS MoneyWatch.

How does inflation affect tax returns?

The Internal Revenue Service (IRS) adjusts certain tax-related figures to account for inflation. The purpose of these adjustments is to prevent “bracket creep” and ensure that taxpayers aren’t pushed into higher tax brackets or face higher tax liabilities simply due to inflation-driven increases in income.

For filing this year, tax systems like brackets and the standard deduction have been increased by 7.1%, meaning a taxpayer’s wage needs to have increased by this amount to be taxed at last year’s level. What has actually happened is wages increased by 4.6% year-on year so those workers whose pay did not increase by more than 7% should have a lower tax contribution.

Steber predicts a “higher refund for those people, up to 10%” in their refunds this year.