Millions of taxpayers are lining up early to file their income tax refunds. The filing season has started strong after the initial hiccup when the IRS advised filers in 20-odd states to put off filing their returns till the agency gave a clear picture of tax on state inflation stimulus checks.
But the IRS has cleared the air on that issue and has stated that the inflation relief payments of 2022 would be exempt from federal income tax. The initial data from the IRS revealed that filers are moving in more quickly than they did last year in filing their returns.
The tax season opened on January 23, 2023, a day earlier than it did in 2022. The IRS has revealed more data right from the beginning of the season. The cumulative figures confirm that the numbers are way up. The IRS has already received 18,946,000 individual tax returns in 2023 against 16,685,000 a year ago.
That is a significant increase of 13.5% during the running tax season. The IRS has also increased its processing numbers and the figures are also way up. The huge backlog that had piled up over the pandemic years is finally being cleared. The IRS has revealed that it has processed 16,767,000 returns against 12,992,000 individual returns during the same period last year. that is a huge jump of 29.1%.
A majority of tax returns received this year have been electronic filings. That is 92% of the total returns. 65% of such electronic returns have been deemed self-prepared with the rest prepared by income tax professionals.
Tax Refunds Numbers Are Up Despite Fall In Check Amount
The majority of early filers are taxpayers who file simple returns and are in line for tax refunds from the administration. The IRS has issued 7,996,000 income tax refunds this year compared to 4,330,000 the previous year. that is an increase of close to 85% in tax refunds this year. with such huge numbers of tax refunds, the total amount has also increased significantly to $15.696B.
But filers are in for a disappointment as for the first time after the pandemic, the individual tax refund amount has gone down. The discontinuance of the expanded version of the Child Tax Credit payments has been one significant reason for the drop in individual tax refund amounts.
From between $3,000 to $3,600 for the 2022 tax season, the child tax credit payments have reverted to the pre-pandemic figure of $2,000. The average tax refund is down to $1,963 from $2,201 in 2022. the confusion around the enhanced child tax credit and other relief measures linked to the COVID-19 pandemic ensured that web visits to the IRS site were higher by 12% in 2022 as people sought clarity n these confusing issues.
IRS Say Tax Refund Numbers Could Change As Tax Season Progresses
IRS sources say that they expect the tax refund numbers will change mid-month as the IRS will wait to begin issuing refunds to filers who claim the Additional Child Tax Credit (ACTC), and the Earned Income Tax Credit (EITC).
Filers in 2017 were surprised when the law first took effect but taxpayers have been used to the delay and file their returns a bit later. But the average tax refund will be nowhere near the $3,200 average for the 2021 tax year.
All benefits that gave a boost to refunds during the pandemic have not lapsed but have reverted to a small level as it was during the pre-pandemic years. This is the case of the Child Tax Credit, which is credited with helping millions of children and their families out of poverty during a brief period between July 2021 and the tax refund in 2022 when the filer received the balance 50% payment as tax refunds.
From a pandemic high of up to $3,600, the payments have reverted to their prior level of $2,000 per kid, an amount that was doubled from $1,000 under the Tax Cuts and Jobs Act of 2017. The act also made up to $1,4000 of the tax credit refundable. It also increased the income threshold amount to make the child tax credit available to more families.
Before 2018, the full CTC was available only to single parents with an Adjusted Gross Income of less than $75,000 and families with an AGI of less than $110,000 a year.
The TCJA made a significant increase in this income threshold to $200,000 for individual parents and $400,000 for married couples filing jointly. And above these limits, the CTC phased out at the rate of $50 for every increase of $1,000 in earnings.
Resolution On Taxation Of Inflation Relief Payments Relief For Filers
For the residents of 20-odd states that have given out stimulus checks against inflation to its residents, the issue of federal taxes was a worry till the agency gave a clear resolution to the issue. Close to two dozen states issued one-off payments to a section of residents in 2022. In some states, the inflation relief payments went out to all residents irrespective of their earnings.
But the payments also created confusion about whether filers were obligated to report the money as taxable income on their federal income tax returns as the IRS delayed in providing any clear guidance before the start of the 2023 tax season or even after it began. It merely advised filers in these states to delay filing their income tax returns till a clarification was filed.
Taxpayers received a clarification only three weeks into the tax season. The IRS clarified that while general payments are usually considered taxable income for federal tax, there are exceptions to the rule. The agency said that this exception would be applicable in the case of the inflation relief stimulus checks and tax rebates issued by these states.
Payments made by 16 states have been deemed not taxable as the IRS has declared them as welfare or disaster payments, which are not taxable generally. But residents of Georgia, South Carolina, Virginia, Massachusetts, and Alaska could have to pay tax on the payments.