Why Your Tax Refund May Be Bigger This Year
Americans are still benefiting from a raft of pandemic relief measures that are contributing to the biggest tax refunds seen at this point in the filing season in more than a decade.
For those who have already sent their tax returns to the IRS, payouts averaged $3,352 for the week ended March 11, a 13% increase from a year ago and the largest average refunds since at least 2010. That’s a big jump considering the year-to-year difference has typically been less than 1% as of mid-March.
One big reason is a provision in one of the pandemic relief measures, the American Rescue Plan Act, that expanded the child tax credit to as much as $3,600 a child in 2021 from $2,000 for some 39 million eligible families. The credit was also made fully refundable, which means that even if you didn’t owe enough in taxes to get the total credit, you still get paid the full amount. Previously, cash refunds for the credit were limited to $1,400 a child.
For many families, the child tax credit is distributed as part of their tax refund. Last year, half of the new credit was paid in advance via monthly installments starting in July. So one might have thought that the $1,800 a child that was already paid out would have reduced the average refund, or kept it pretty flat.
But a lot of other things played into this tax refund season.
First, keep in mind that we’re talking about averages here. Individual circumstances are different, and any person may have a smaller refund or owe the government more money because of fewer deductions — such as for student-loan interest following the moratorium on federal loan payments — or maybe they didn’t withhold enough after changing jobs.