Tax refunds are markedly smaller so far this year than the same time a year ago, according to the early data from the IRS

Tax refunds are markedly smaller so far this year than the same time a year ago, according to the early data from the IRS.

The IRS reported that the average refund amount as of Feb. 2 was $1,395, marking a 28.9% decrease from $1,963 for the same period last year. This data is based on nearly 2.6 million refunds issued so far, compared to 7.9 million refunds issued by the same point last year.

These statistics for the current year are based on five days of data, whereas in a typical year, there would be 12 days of data, as the filing season opened on Jan. 29 this year, as opposed to Jan. 23 last year.

It's important to note that the average refund amount is likely to change as more returns are processed. Refunds that include the earned income tax credit (EITC) and the additional child tax credit (ACTC) are delayed by law until mid-February. The IRS estimates that most EITC filers will receive their refunds by Feb. 27 if there are no issues with their returns and if they chose direct deposit.

This early data suggests that the return to pre-pandemic credit allowances will result in smaller refunds for many taxpayers.

Last year, the average refund was $3,167 based on nearly 163 million returns, according to the latest IRS data. However, tax experts point out that receiving a large tax refund may not be ideal, as it means having less money in your paycheck throughout the year due to over-withholding. Adjusting your withholding on your W-4 form can help ensure you receive more money in your paycheck.

Smaller refunds could be challenging for households that rely on this money to improve their financial situation. Last year, Americans used their refunds to bolster savings, reduce debt, and cover essential household expenses, according to a survey.