May 11, 2023 - Economy

Tax refunds are lower, and that means less spending money

Illustration of a person holding a really tiny dollar bill.

Illustration: Allie Carl/Axios

The average federal tax refund is down 8% this year, leaving consumers with less spending money than they've become accustomed to at this time of year.

Why it matters: Many Americans count on their tax returns to generate cash flow, giving them a financial boost heading into the summer.

By the numbers: The average refund was $2,777 through April 28, down from $3,019 at the same point in 2022, the IRS reported.

  • Overall, the IRS has refunded about $24.3 billion less so far in 2023 than it had refunded at the same point in 2022.

The impact: "Weakness in tax refunds was likely a headwind to spending" in April, Bank of America economist Aditya Bhave wrote in a research note.

  • In April alone, the decline in tax refunds amounted to a nearly 1% decline in monthly disposable income, Bhave estimated.

Meanwhile, total spending per household on Bank of America credit and debit cards was down 1.2% in April, compared with a year earlier, marking the first year-over-year decline since February 2021.

Between the lines: The decline in tax refunds is not because the IRS is processing refunds at a slower rate. It's not.

  • "The average number of refunds issued was close to 2022 levels at the end of April," Bhave wrote.
  • "This suggests to us that total refunds are unlikely to catch up to 2022 levels as more returns are processed."

Be smart: Americans enjoyed a tax refund surge in 2021 and 2022 due to the influx of federal stimulus spending stemming from the pandemic.

  • But several tax breaks have been scaled back, including child tax credits, stimulus rebates and charitable deductions, NPR reported.

The bottom line: Tax refunds are returning to normal levels, and Americans are adjusting.

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