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- Many Americans rely on their tax refund as a way to catch up on bills and other expenses.
- Inflation means that refunds have dropped in value, and refunds are expected to be much lower this year.
- For the first week of refund data published by the IRS, the average refund was under $2,000.
High inflation is affecting more than just credit card debt and grocery shopping — this year, inflation will also be felt by many in the size of their tax refund.
Many rely on that tax refund each year to make ends meet and to catch up on bills, but this year, that may not be possible.
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Inflation means refunds will be worth less
Americans are on track to get smaller refunds this year after a series of expanded tax credits that paid more to families and low earners expired. Your 2022 tax refund will likely be a lot smaller than the tax refund you received in 2021.
But there’s another reason refund checks may feel even smaller, and it’s one that you’ll feel even if you got a big refund last year: persistent inflation.
More than 129 million Americans received an average tax refund of $2,815 for their 2020 taxes. Because inflation has pushed prices up by about 10% over the last two years, that same refund check would buy much less in 2023.
Inflation makes 2020 refunds worth $26.7 billion less
How much less? If Americans received refunds of $2,815, on average, in 2023, it would represent a $26.7 billion loss to inflation. To keep up with rising prices, Americans need an average refund of at least $3,021.
2021 refunds were much higher than average, and that filing season was an anomaly. Refunds were higher than in any of the past five years because of Economic Impact Payments and advance child tax credit payments. Looking at 2020 data instead gives a more accurate picture of average refund size.
So far, refunds aren’t coming close to that. According to tax season data published weekly by the IRS, the average refund for the week ending February 3 was just $1,963. For the week ending February 10, that amount went up to $1,997, but that’s still a significant drop.
The consequences of high inflation
There is still high inflation and economic volatility as well as rising interest rates. If you also add in the potential for much smaller refunds, which many depend on to bridge the gap during this time of year, it can be a lot for the average person, or family, to bear.
