Americans facing shrinking tax refunds as inflation remains high
The average refund amount so far this tax season has been just under $3,000 — about 10% lower than a year ago, according to the IRS. The dip in refunds and the end of certain pandemic-era relief policies is putting a squeeze on many.
Matt and Heather Mohalski own a custard store near Atlanta, and inflation is eating into their profit margin. The couple had hoped for their usual healthy tax refund this year.
"That little bit of extra money helps us deal with the seasonal nature of our business and the changing expenses in our business," Heather Mohalski said.
During the COVID-19 pandemic, the Mohalskis relied on government stimulus checks, while a PPP loan kept their business afloat and child tax credits for their two kids boosted their refund.
Two years ago, that refund was $8,800. It dropped to $1,700 last year. But this year, the couple owes $3,100.
"It's a rude awakening," Matt Mohalski said.
Roughly 70% of Americans worry about tax refunds this year, according to an estimate from Bankrate, mainly because of expiring pandemic relief programs. The enhanced child tax credit, for example, was cut from up to $3,600 per child to $2,000.
"There's nothing we can do about it other than just react to it and manage money as best we can," Matt Mohalski said.
Accountant Drew Poulos says the time to get ahead of next year's tax return is now. He said the key is planning.
"Planning for contributions for health savings, planning for contributions to retirement account, planning for contributions to college savings fund," he said.
Experts like Poulos advise double-checking for any missing deductions and, for a refund next year, consider adjusting your withholdings now.