Are you curious about how your tax refund compares to the average in the United States? Look no further! The IRS releases filing statistics at the end of each tax season, giving us insights into tax refund trends. Let’s dive into everything you need to know about tax refunds in recent years.
How Tax Refunds Work
A tax refund is a reimbursement of the overpayment of income taxes to taxpayers. If you receive a substantial tax refund, it means you’ve been having too much withheld from your paychecks. When you start a new job, you’ll need to fill out employment paperwork, including the Form W-4, Employee’s Withholding Certificate. The information you provide on your W-4 helps your employer determine your federal income tax withholding. It’s essential to update your W-4 if you experience major life changes like marriage, divorce, or having a new baby, as these changes can significantly impact your taxes.
The Average Tax Refund Last Filing Season
For the tax year 2022, the average tax refund, according to IRS filing season statistics, was $2,753. If you opted for direct deposit, the average refund was slightly higher at $2,827.
The Average Tax Refund by Year
Here’s a breakdown of the average tax refunds over the past five years, based on IRS filing-season statistics:
- 2018: $2,899
- 2019: $2,869
- 2020: $2,881
- 2021: $2,741
- 2022: $2,753
It’s worth noting that the average tax refund for the 2021 tax year was higher due to pandemic-related tax breaks.
States with the Biggest Tax Refund
According to Lending Tree’s analysis of individual income tax returns for the 2020 tax year, Wyoming had the highest average tax refund for several years in a row, with an average refund of $4,877. The top five states and districts with the largest tax refunds in 2020 were:
- Wyoming: $4,877
- District of Columbia: $4,462
- Florida: $4,337
- Texas: $4,317
- Connecticut: $4,280
Which State Had the Smallest Average Refund?
On the other end of the spectrum, Maine had the smallest average tax refund for several years in a row, with an average refund of $2,920 for the 2020 tax year.
Which Income Bracket Got the Biggest Refund?
Based on Lending Tree’s analysis of individual income tax returns, high-income taxpayers in the $500,000 to $999,999 bracket received the highest total dollar amount refund, with an average refund of $35,128 for the 2020 tax year. Low-income taxpayers in the $10,000 to $24,999 bracket received the largest refund as a percentage of their income.
Why Are Tax Refunds Smaller This Year?
Tax refunds were smaller in the 2022 tax year compared to 2021 because many pandemic-related tax breaks expired. In 2021, taxpayers were able to claim additional deductions for charitable contributions and received stimulus payments along with their tax refunds, boosting their overall refund amounts. However, these benefits were not available in 2022, resulting in smaller refunds.
TIME Stamp: A Big Tax Refund Is Not Always Best
Receiving a large tax refund may seem like a win, but it’s not necessarily the best financial strategy. The IRS does not pay interest on the money it holds throughout the year. If you adjust your W-4 to reduce your tax withholding, you’ll have more money in your paychecks, allowing you to save or invest it. Aim to get your tax refund as close to zero as possible for an optimal financial situation.
If you do receive a substantial tax refund, consider putting it to good use. Pay off high-interest debts first, such as credit card balances or loans. If you’re debt-free, consider saving or investing the refund for future goals. Budgeting and investing apps like Playbook or Simplifi by Quicken can assist you in creating a plan to make the most of your money.
Tax refunds vary based on filing status and the number of dependents, both of which impact tax withholding. To estimate your tax refund before the end of the year, you can use online calculators like the TurboTax tax calculator. If you own a business and need to pay estimated taxes quarterly, apps like Found can help you estimate taxes owed and manage your business expenses effectively.
Remember, filing your tax return electronically and choosing direct deposit is the fastest way to receive your tax refund. Avoid delays by opting for e-filing rather than mailing your return or waiting for a physical check.
Frequently Asked Questions (FAQs)
What is the average tax refund for a single person making $100,000? According to Lending Tree’s analysis, the average tax refund for a person earning between $100,000 and $199,999 is $4,436.
What is the average tax refund for a single person making $40,000? Lending Tree reports that the average tax refund for a person earning between $25,000 and $49,999 is $2,845.81.
What is the average IRS refund time? The IRS issues 90% of refunds within 21 days of filing a tax return. However, if you claim certain tax credits like the earned income tax credit (EITC) or Additional Child Tax Credit (ACTC), the earliest you can expect your refund is February 28 in most cases. You can track the status of your return and refund using the Where’s My Refund? tool on the IRS website.
Remember to always stay informed about tax regulations and consult a qualified tax professional if you have specific concerns or questions.
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