"Strong inflation in 2022 led to significant inflation-linked tax code adjustments for tax year 2023, resulting in a more generous standard deduction, a larger maximum amount that filers can claim for the Earned Income Tax Credit (EITC), and even higher income thresholds where tax rates take effect — thereby subjecting more income to lower tax rates, all else equal," noted Oxford Economics lead U.S. economist Bernard Yaros in a recent research note about this year's tax refunds.
How Americans use their tax refunds
About two-thirds of U.S. adults believe they'll receive a tax refund, which typically represents a household's biggest annual influx of cash, according to a from Bankrate. But rather than use their refunds for splurges, many have serious plans for the cash infusion, with about half planning to use their checks to pay down debt or bolster savings, Bankrate found.
Yet even with the higher average tax refund so far this year, taxpayers are still receiving less than they did two years ago, when the expanded child tax credit and other pandemic-era benefits helped boost the average refund. Still, refunds overall are higher than they were at the same time in the tax season from 2018 through 2021, IRS data shows.
Tax refunds also provide an essential lift to the economy, given that many taxpayers rely on their checks to buy cars, renovate their homes or make other purchases.
"Across the various categories of retail sales, we find the clearest impact from refunds to be on general merchandise stores and used-car dealerships," Yaros added.
To be sure, it's still early in the tax season, as Americans have until April 15 to file their returns, and the typical tax refund could change in the following weeks.
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