IRS data shows initial drop in average tax refund

The IRS released data on Thursday showing that the average refund size for the first 12 days of this year’s tax-filing season was smaller than it was during a similar period last year.

The average refund size through Feb. 8 was $1,949, which was 8.7 percent smaller than the average refund size through Feb. 9, 2018.

{mosads}In 2018, the average tax refund for the first two weeks of the filing season was $2,135, and in 2017 it was $1,994. The 2017 filing season started one week earlier than the 2018 and 2019 filing seasons did.

A senior Treasury Department official said that there can be a lot of variability from one filing season to another and cautioned to not read much into the early data. The official also said that at this point, Treasury expects the average refund size will be “slightly lower” compared to last year once all tax returns have been filed for the year.

Politicians are paying close attention to refund sizes because this year is the first time that people will be filing tax returns that reflect many of the changes made by President Trump’s 2017 tax-cut law.

The Treasury official said that most people seeing smaller refunds this year are getting a reduction in their overall taxes. The Treasury official said that the administration expects about 80 percent of people to receive a tax cut for 2018, compared to if the tax law hadn’t been enacted, while another 15 percent will have their tax liability stay the same. People are filing their 2018 tax returns this year. 

Taxpayers can owe money to the IRS instead of receiving a refund while also paying less in total taxes in a year. People receive tax refunds when they have too much money withheld from their paychecks over the course of the year.

Nonetheless, people often focus on their refunds, because they may use the refunds for savings or to make certain purchases.

A Treasury spokesperson said in a statement that it’s good when people receive smaller refunds, because it means that they have not overpaid the government as much throughout the year.

“Most people are seeing the benefits of the tax cut in larger paychecks throughout the year, instead of tax refunds that are the result of people overpaying the government,” the spokesperson said. “Smaller refunds mean that people are withholding appropriately based on their tax liability, which is positive news for taxpayers.”

The latest batch of data comes after the IRS’s data about the first week of the tax-filing season showed that the average refund size was 8.4 percent smaller than it was in the first week of the 2018 filing season.

A number of Democrats pointed to the refund data to criticize Republicans’ tax law, while Republicans have emphasized that most people will have a tax cut due to the new law. Treasury tweeted that reports about the initial batch of refund data were “misleading,” since the data was consistent with 2017 levels and the sample size was small.

The IRS released new guidance on withholding from people’s paychecks that reflected several of the major changes made by the tax law, prompting most wage earners to receive bigger paychecks throughout the year.

But the guidance did not take into account every tax change, so some people are likely to get bigger refunds than they have in the past while others who have gotten refunds in the past may have not had enough taxes withheld throughout the year and will end up owing the IRS money.

Treasury and the IRS have encouraged people to use the IRS’s online withholding calculator and submit new W-4 forms to their employers to update their withholding if necessary.

According to a Government Accountability Office report issued last year, Treasury estimates that 21 percent of taxpayers will owe the IRS money this year, compared to 18 percent if the tax law hadn’t been enacted. That estimate assumes that taxpayers did not adjust their withholding during the year.

Updated at 12:48 p.m.