iThe Internal Revenue Service reported Wednesday that the average refund grew to $2,436 for tax returns filed through last Friday. That's a 9% increase from the average $2,230 check sent to early filers last year.
The IRS also said it's seen an uptick in tax return filed electronically, with strong growth among individuals using tax software to file from home.
The nation's tax collectors estimate that, for the first time, more than half the tax returns filed by individual and family tax returns will arrive electronically.
"It's fast, easy and you get refunds in half the time," said IRS Commissioner Mark Everson.
Tax refunds tend to be higher during the early part of the filing season, as individuals expecting a check act quickly to claim their money.
This year's growing refunds can be partly pegged to tax changes that took effect last year, which increased tax benefits for low-income families, said Kathy Burlison, director of tax implementation at H&R Block.
Those changes include an increase in the amount of child tax credit that can be claimed as a tax refund. The old law let families claim 10% of their earned income over $10,500, but a change now lets families claim 15% of earned income over $10,750.
Low-income families also benefited from a small increase in the earned income tax credit, a benefit aimed at lifting low-wage workers out of poverty.
"That's certainly meaning bigger refunds," she said.
Burlison said other tax law changes could be contributing to the trend. Taxpayers who live in states without income taxes got a new deduction for state sales taxes, and parents and students saw a deduction for tuition and fees increase.
A tax refund in the spring means a taxpayer overpaid throughout the previous year. Financial planners counsel taxpayers who get big refunds to make adjustments that let them get that money sooner.
"In general, it's not a good idea to make an interest free loan to the government or to anybody else," said Alan Straus, an attorney and certified public accountant in Manhattan.
"Most people would do better off adjusting their withholdings so that they take home more every week and don't wind up with a huge refund at the end of the year."
For others, waiting to get that tax refund in the spring might be the best way to save money.
"Everybody has different levels of discipline," said Peggy Cabaniss, a certified financial planner in Orinda, Calif.
Taxpayers who got a big refund or a big bill who want to get closer to their true tax liability next year can change the amount of taxes withheld from their paychecks to either increase or decrease the amount withheld from their paychecks.
Constantly changing tax laws can make it difficult to anticipate what next year's tax return will look like, Cabaniss said. She recommended taxpayers ask their tax professionals to get a forecast for the coming year.
"The tax laws are changing every year," she said. "All of our finances and our taxes are getting more and more complicated, so it's requiring more preplanning and more work," she said.
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IRS reports increased tax refunds, more electronic filing |
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