Could You See a 10% Bump in Your Tax Refund This Year?

Taxpayers might be in for a treat this tax season.  While last year saw an average tax refund of $3,167, about 3% less than the prior year, there is optimism in the air for those expecting a refund this year. 

Mark Steber, Chief Tax Information Officer at Jackson Hewitt, suggests this year might bring good news, with potential increases of up to 10% in some cases. The key factor contributing to this positive shift is the impact of inflation adjustments made by the IRS in 2023, and it might be good news for you. 

Who will receive a bigger tax refund?

Tax experts point out that inflation, despite its adverse effects on purchasing power, could ironically work in favor of taxpayers this year. The IRS made substantial adjustments for inflation in 2023, increasing the standard deduction and expanding tax brackets by 7.1%, which is an all-time significant adjustment.

Mark Steber emphasizes that those whose incomes didn't keep pace with inflation, essentially maintaining the same income as the previous year without the 7.1% increase, are most likely to see improved refunds.

Modeling predictions based on last year's tax refund data and IRS inflation adjustments indicate the potential for up to a 10% increase in refunds. Middle- and lower-income workers, who often struggle to keep up with inflation, are identified as the primary beneficiaries of this anticipated boost.

Considerations to determine if you might get a larger refund

The median worker experienced a 5.5% increase in earnings last year, falling short of the 7.1% inflation adjustment adopted by the IRS. Middle- and lower-income workers, who likely didn't keep pace with inflation, are anticipated to be the primary beneficiaries of this potential refund boost when they file in 2024. The hope is that a larger refund can help people get out of debt or possibly get ahead financially.

To check how these changes might affect your refund, utilizing a 2024 tax refund calculator, available from tax preparation companies, is a practical step. Also, here are a few important considerations that could help you see a larger refund:

• Homeowners and energy credits: Homeowners who tapped into expanded home energy tax credits could see a bump in their refunds. These credits aim to encourage energy-efficient practices in households.
• Low-income families with children: Low-income families with children might be among those enjoying a larger refund. The Earned Income Tax Credit (EITC) has seen an expansion, with the maximum credit for the 2023 tax year reaching $7,430.
• Social Security beneficiaries: The Social Security tax threshold increased to $160,200 for the 2023 tax year, which can result in a higher tax bill for some beneficiaries.

Additionally, the largest indicator of whether you'll receive a larger refund is the tax year you fall into this year compared to last year. 

Tax brackets for 2023 (filing in 2024)

Based on your adjusted gross income in 2023, here’s how much you will be taxed for the 2023 tax year:

Single Filers:

• 10%: Income not over $11,000
• 12%: Over $11,000 but not over $44,725
• 22%: Over $44,725 but not over $95,375
• 24%: Over $95,375 but not over $182,100
• 32%: Over $182,100 but not over $231,250
• 35%: Over $231,250 but not over $578,125
• 37%: Over $578,125

Married Filing Jointly:

• 10%: Income not over $22,000
• 12%: Over $22,000 but not over $89,450
• 22%: Over $89,450 but not over $190,750
• 24%: Over $190,750 but not over $364,200
• 32%: Over $364,200 but not over $462,500
• 35%: Over $462,500 but not over $693,750
• 37%: Over $693,750

Head of Household:

• 10%: Income not over $15,700
• 12%: Over $15,700 but not over $59,850
• 22%: Over $59,850 but not over $95,350
• 24%: Over $95,350 but not over $182,100
• 32%: Over $182,100 but not over $231,250
• 35%: Over $231,250 but not over $578,100
• 37%: Over $578,100

Married Filing Separately:

• 10%: Income not over $11,000
• 12%: Over $11,000 but not over $44,725
• 22%: Over $44,725 but not over $95,375
• 24%: Over $95,375 but not over $182,100
• 32%: Over $182,100 but not over $231,250
• 35%: Over $231,250 but not over $346,875
• 37%: Over $346,875

Bottom line

As the IRS launches the new tax filing season taxpayers should approach this year's filing with cautious optimism. The potential for larger refunds, driven by inflation adjustments, is a positive turn for those who may have felt the impact of a smaller refund last year. If you do receive a larger refund then it might be a good time to use that money on smart moves to help build your net worth.