2024 Tax Refunds Keep Shrinking—Here's What's Really Going On

Are tax refunds so low this year? Absolutely. And if you’re expecting a fat check from the IRS in 2024, you might want to temper that hope.

The numbers tell a stark story. As of early February 2024, the average refund sitting at just $1,395—that’s a 29% drop from the previous year. For context, 2023’s average hit $1,963, and the seasonal average across the full 2023 filing year was $3,252. This 13% year-over-year decline signals a real shift in how much money Americans are getting back.

The IRS processed over 2.6 million returns totaling $3.65 billion in those early filing days. But here’s the catch: early-filers don’t represent the full picture. Those claiming child tax credits and earned income tax credits have their refunds legally delayed until at least February 27th. So these depressed numbers could shift as more people file.

Why Tax Refunds Are Getting Smaller

Several converging forces are squeezing refund checks across the country.

Wage changes without withholding adjustments top the list. Workers who got raises but never updated their W-4 forms (the paperwork controlling how much tax gets pulled from each paycheck) are essentially overpaying throughout the year—but less than before. That’s actually not terrible, but it does mean smaller refunds.

The gig economy effect is another culprit. Freelancers, Uber drivers, and contractors typically don’t have taxes automatically withheld. Many keep their estimated quarterly tax payments flat, leading to smaller refunds or even owing money come April. As this workforce segment grows, it reshapes the refund landscape.

Investment gains are playing a role too. Stock market strength in 2023 meant capital gains for many filers. More income = higher tax liability = smaller refund (or potentially taxes owed). Some taxpayers didn’t adjust their withholding to account for investment income flowing in during the year.

Income fluctuations pushing people into higher tax brackets, changes in dependent claims, job transitions, and life events like property sales or marriage all create refund volatility that’s hard to predict.

Lower Refunds Aren’t Necessarily Bad News

Here’s the counterintuitive part: a smaller refund actually means the IRS held onto less of your money throughout the year. That $600 difference between last year’s $1,963 average and this year’s $1,395 stayed in your bank account during 2023—roughly $23 per paycheck.

This shift suggests Americans are getting better at tax withholding, or at least making intentional choices about it. Fewer people over-withholding means more cash flow for living expenses, debt paydown, or investments in real time.

The real problem emerges when people lean on refunds as their annual savings plan or way to cover essential bills. If you’ve been counting on a $2,000 refund to handle back taxes or credit card debt, a $1,400 reality stings.

The Inflation Factor and Tax Bracket Adjustments

Inflation-driven changes to standard deductions and tax brackets in 2024 could actually boost refunds for some households. The IRS annually adjusts these thresholds, so workers with stable incomes might see slightly larger refunds thanks to bracket creep adjustments—though this varies heavily by individual situation.

What About Pending Tax Changes?

Congress has discussed retroactive improvements to the child tax credit for 2023 filers, which could increase refunds down the line. But don’t hold your breath—these legislative changes remain pending and uncertain.

The Bottom Line

Tax refunds in 2024 are tracking lower, but it’s not all doom. For those disciplined enough to manage cash flow, smaller refunds mean more breathing room throughout the year. For others relying on that annual windfall, it’s a wake-up call to adjust withholding or build an emergency fund.

To get your refund processed faster, file electronically, use direct deposit, and triple-check accuracy. The sooner you submit, the sooner you close the books on the 2023 tax year and avoid unnecessary IRS complications down the road.