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IRS Adjustments for 2024 Tax Brackets Could Yield Larger Refunds

The Internal Revenue Service (IRS) has announced that tax refunds are on the rise this year compared to the previous year
Cover Image Source: Photo by Nataliya Vaitkevich | Pexels
Cover Image Source: Photo by Nataliya Vaitkevich | Pexels

The IRS's inflation-adjusted changes to tax brackets and basic deductions for 2024 are expected to result in larger tax refunds for certain individuals. These adjustments reflect the rising cost of living, potentially allowing individuals whose incomes have not increased significantly to pay less in taxes or receive more money back. 

Image Source: Getty Images | Photo by Scott Olson
Image Source: Getty Images | Photo by Scott Olson

As of February 16, the average tax refund stands at $3,207, marking a 2.1% increase from the same period last year. This increase in average refunds comes as a reversal from the decline observed in 2023 when refunds were 3% lower due to the expiration of pandemic-related tax benefits.

The adjustment of IRS provisions for inflation for the 2023 tax year, including increases in the standard deduction and tax brackets by about 7%, has contributed to the larger refunds seen this year.

Workers whose wages did not keep pace with inflation in the previous year are expected to receive even larger tax refunds, potentially up to 10% more, according to Mark Steber, Chief Tax Information Officer at Jackson Hewitt.  

Pexels | Nataliya Vaitkevich
Image Source: Pexels | Photo by Nataliya Vaitkevich

New tax credits introduced in 2023, such as those for energy-efficient home modifications and the purchase of clean vehicles, could lead to higher tax refunds for eligible individuals. In contrast, many taxpayers experienced smaller-than-expected tax refunds in 2022 due to the pandemic-related expiration of certain tax credits like the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC).

However, a proposed tax measure, the Tax Relief for American Families and Workers Act of 2024, aims to enhance the Child Tax Credit, potentially resulting in larger refunds for eligible individuals in 2024 and beyond.

Furthermore, pending legislation in Congress seeks to retroactively enhance the Child Tax Credit for 2023, particularly benefiting lower-income individuals. This could lead to additional refunds for those filing their 2023 tax returns. However, financial stress remains a concern for many Americans, with a significant portion living paycheck to paycheck and worrying about covering necessities like food and energy.

Image Source: Photo by RDNE Stock project |Pexels
Image Source: Photo by RDNE Stock project | Pexels

This year, certain taxpayers may find themselves owing more, especially if they engaged in side gigs to counter the effects of inflation in the previous year but failed to pay quarterly self-employment taxes. Moreover, families with teenage children who no longer qualify for the $2,000 child tax credit, restricted to kids under 17, may experience reduced refunds.

While the current average tax refund is $3,207, it's important to note that there are still seven weeks remaining in the tax season, and the data may fluctuate until the IRS's tax return deadline on April 15.

Furthermore, taxpayers have the option to request an automatic extension, extending the filing deadline to October 15. As of now, approximately 34.7 million tax returns have been filed, a fraction of the 146 million individual tax returns expected by the IRS for the year.