Tax refunds are declining due to more gig economy workers not paying estimated taxes and changes in the withholding system, but those who do receive refunds are seeing higher average amounts.
IRS Data Shows Decline in Tax Refunds Due to Gig Work and Withholding Changes
According to the published article by Money Wise, tax refunds in the United States are decreasing, according to recent IRS data. By mid-May 2024, 93.9 million refunds were issued, a 1% drop from the same period in 2023. This continues a trend, as refunds fell 4.4% from 2022 to 2023. Various factors could be causing this decline. More people now earn money from jobs that don’t withhold taxes, like gig work and independent contracting. If these workers don’t make estimated tax payments, they face penalties that reduce their refunds.
The way taxes are withheld has also changed. During the Trump administration, the system was revamped to reduce refund amounts, making the process more complicated. This may have caused some people to underpay taxes throughout the year, resulting in fewer refunds and more people owing money at tax time. In 2023, 13 million people were penalized for not paying estimated taxes, a significant increase from before the pandemic. Despite fewer refunds, the average refund amount increased to $3,050 in 2024, up 4.8% from $2,910 in 2023.
READ ALSO: $50 Billion In Revenue At Stake: Clash Tax Policies Of Biden Tackling Tax Havens While Trump Proposes Radical Income Tax Elimination – Must Know!
2024 Tax Refund Update: 1% Fewer Refunds, Average Amount Rises to $3,050 – What’s Behind the Shift? (PHOTO: CBS News)
Smart Ways to Use Your Tax Refund – Pay Off Debt, Invest, and Hire a Tax Pro
Furthermore, using your tax refund wisely is beneficial. Paying off high-interest credit card debt is smart, as average APRs reached 22.8% in 2023. Investing in low-cost S&P 500 index funds can also yield significant growth. Hiring a professional tax preparer can help maximize your refund by finding additional deductions and credits.
READ ALSO: $90 Million In Refunds And $5.6 Million In Savings: IRS Makes Direct File Electronic Filing System Permanent – What You Need To Know!
