IRS Reports Decline in Tax Refunds: Average Payouts Increase Despite Fewer Claims
Gig Economy and Stock Trading Impacting Tax Refunds: Fewer Filers, Higher Refund Amounts
According to Wise Money, the federal government is issuing fewer tax refunds this year according to recent data from the IRS. By mid-May 2024 the IRS reported distributing 93.9 million refunds which is slightly down from the 94.8 million refunds issued at the same time last year. This decrease continues a trend observed from 2022 to 2023 when the total number of refunds dropped by 4.4%. Despite fewer refunds the average amount received by taxpayers has increased. In 2024 the average refund amount rose by 4.8% reaching $3,050 compared to $2,910 in 2023. This shift indicates that although fewer taxpayers are getting refunds those who do are receiving larger amounts.
Several factors are contributing to the decrease in the number of tax refunds. A major reason is the growing number of people earning income outside traditional jobs such as gig workers and freelancers. These workers often do not have taxes withheld from their income automatically and may fail to make estimated tax payments throughout the year. This leads to penalties that reduce their potential refunds. Changes to the tax withholding system introduced during the Trump administration also play a role. These changes were aimed at reducing the amount of tax withheld from paychecks which in turn lowers the size of refunds. Furthermore increased activity in stock trading and cryptocurrency with many not accounting for taxes on their gains results in more people owing money at tax time instead of receiving refunds.
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$3,050 Average Refund in 2024; 93.9M Taxpayers Receive Refunds, Down 1.2% from Last Year-Fewer Refunds Bigger Checks! (PHOTO: New York Post)
Rise in Estimated Tax Penalties: 13 Million Filers Affected Amid Growing Need for Financial Planning
The IRS statistics show a significant rise in penalties for failing to pay estimated taxes. Last year 13 million filers faced these penalties which is a notable increase compared to pre-pandemic levels. Many of these filers earn less than $75,000 annually highlighting that a broad spectrum of taxpayers is affected by these changes. As more people earn income through non-traditional means and navigate the complexities of the tax system the declining number of refunds suggests a need for improved financial planning and awareness about tax responsibilities. This evolving tax situation emphasizes the importance of adapting to new economic conditions and seeking professional tax advice to maximize refunds and reduce liabilities.
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