Half of Americans Expect $1,000 or Less in Their Tax Refunds This Year: Are They Right?
This tax season, Americans might be receiving less than they did last year in refund money. This is mostly due to changes in pandemic-era tax credits and stimulus payments, of which there were none in 2022. With a recession on the horizon and high inflation and interest rates, a tiny tax refund probably feels like the cherry on top of an already bad year for pocketbooks.
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According to a recent survey conducted by GOBankingRates, 18% of Americans do not expect to receive a refund and 32% of Americans expect to receive between $0.01 and $1,000. How accurate are these estimates? Let’s take a closer look.
50% of Americans Expect $1,000 or Less in Their Tax Refunds
GOBankingRates’ survey results showed that many Americans are not expecting a refund this year, or are expecting to receive monetary compensation under $1,000. Specifically, 18% don’t expect any money — which is nearly one-fifth of respondents. Of those who feel pessimistic about getting money back, Americans over 45 make up the majority, as 28% who responded this way are aged 45-54. Additionally, 24% are 54-64 and 19% are over 65.
Some taxpayers hold more hope that they will receive at least some money back on their 2022 taxes. Seventeen percent of respondents are expecting to receive between $0.01 and $500 in their refund. Looking at the age breakdown, Americans over 55 make up the majority of those expecting this return amount, as 22% of respondents in this category are 55-64 years old. Additionally, 22% are over the age of 65.
Others are expecting a bit of a larger tax return — between $501 and $1,000 — this tax season. According to the survey, 15% of Americans fall into this category. Younger Americans make up the majority of those expecting this return amount, as 20% of respondents who answered this way are aged 18-24. On the other hand, those over 65 are the least optimistic they will receive a tax return of this size, as a mere 7% of them selected this response.
Take Our Poll: How Much of a Tax Refund Do You Expect in 2023?
Last Year’s Average Return
Last year’s tax return situation was slightly unusual because of COVID-19-related changes to the economy.
“Stimulus payments related to COVID-19 boosted the number [on] tax refunds many Americans saw for tax years 2020 and 2021,” said Herman (Tommy) Thompson Jr., CCFP® at Innovative Financial Group. “Most of the stimulus payments ended in 2021, and as a result, tax liabilities will likely be higher in 2022, thereby making refunds lower.”
While financial experts believe that last year’s tax returns will likely be higher on average than this year’s, here’s a look at a few more changes that may lead to smaller returns this tax season.
“It’s not surprising that refunds are generally smaller this year,” said Tom Wheelwright, CPA and CEO at WealthAbility. “The child tax credit has dropped significantly — from $3,600 per child in 2021 to $2,000 per child in 2022 — and the dependent care tax credit is also way down, from up to $8,000 per child in 2021 back down to the 2019 maximum of $2,100.”
Taking a look at last year alone, the average return was significantly higher than Americans’ predictions for this year. According to CBS, the average American received $3,300 in their tax refund in 2022.
How To Get a Tax Refund of $1,000 or More
One thing that’s important for taxpayers to consider is that getting a large refund means you were overpaying on your taxes throughout the year. In other words, having a large tax refund should not be your goal.
“Your goal should be to legally reduce the amount of taxes you pay throughout the year,” Wheelwright said. “The best way to do that is to invest in activities the government wants you to invest in. Becoming a business owner or investing in real estate are two of seven major categories that the government incentivizes with tax deductions and tax credits that aren’t available to a typical W-2 employee.”
If you are not a business owner or investing in those tax-incentivized assets, there are still some strategies you can use in order to reduce your taxes.
“In 2022, for example, we saw some great tax credits for people installing solar power systems to their homes, buying electric vehicles and investing in some other energy-saving home improvements,” Wheelwright said.
If You Aren’t Happy With Your Refund, Adjust Your Tax Withholding
If receiving a lower refund isn’t sitting right with you, you might want to consider adjusting your tax withholding.
“The best way to predict your annual refund is to actively work with a qualified tax advisor,” Thompson said. “For most traditional W-2 Americans, you can adjust your payroll withholdings to increase your refund or minimize the amount of money you loan to the Treasury interest-free.”
Here’s a guide on paycheck withholdings and how to make sure yours is the right number.
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Methodology: GOBankingRates surveyed 1,002 Americans aged 18 and older from across the country on between January 30 and February 1, 2023, asking fourteen different questions: (1) How do you plan on filing your taxes for this year?; (2) When do you expect to file your taxes this year?; (3) How much do you expect to receive in a tax refund?; (4) What do you plan to do with your refund?; (5) Do you feel confident you are receiving all the deductions you feel qualified for?; (6) Do you believe your tax dollars are being spent effectively?; (7) Do you believe you are paying too much, too little, or a fair share in taxes?; (8) Have you ever been audited before?; (9) Who will/would use your tax dollars the best?; (10) How much is the standard deduction for a single filer (and married filers) in 2023?; (11) What concerns you the most about Tax Day?; (12) Do you expect your tax refund this year to be more or less than last year?; (13) What do you understand the least about your taxes?; and (14) What would you rather be doing than your taxes? (Select all that apply). GOBankingRates used PureSpectrum’s survey platform to conduct the poll.