What You Need to Know
- For the week ended March 11, there was a 13% increase in refunds from a year ago and the largest average refunds since at least 2010.
- The expanded Child Tax Credit is one key reason for the increase.
- That said, most experts say a large return means you overpaid throughout the year.
Americans are still benefiting from a raft of pandemic relief measures that are contributing to the biggest tax refunds seen at this point in the filing season in more than a decade.
For those who have already sent their tax returns to the IRS, payouts averaged $3,352 for the week ended March 11, a 13% increase from a year ago and the largest average refunds since at least 2010.
That’s a big jump considering the year-to-year difference has typically been less than 1% as of mid-March.
One big reason is a provision in one of the pandemic relief measures, the American Rescue Plan Act, that expanded the child tax credit to as much as $3,600 a child in 2021 from $2,000 for some 39 million eligible families.
The credit also was made fully refundable, which means that even if you didn’t owe enough in taxes to get the total credit, you still get paid the full amount. Previously, cash refunds for the credit were limited to $1,400 a child.
For many families, the child tax credit is distributed as part of their tax refund. Last year, half of the new credit was paid in advance via monthly installments starting in July. So one might have thought that the $1,800 a child that was already paid out would have reduced the average refund, or kept it pretty flat.
But a lot of other things played into this tax refund season.
First, keep in mind that we’re talking about averages here. Individual circumstances are different, and any person may have a smaller refund or owe the government more money because of fewer deductions — such as for student-loan interest following the moratorium on federal loan payments — or maybe they didn’t withhold enough after changing jobs.
Refunds tend to be bigger earlier in the tax filing season because those expecting big money back are most likely to file first. But even so, the average tax refund this year is poised to close out the season higher compared with past years’ filing season statistics.
When it comes to the child tax credit, many families simply got much bigger credits (even 17-year-olds could be claimed), which fattened refunds even after receiving half the money earlier in the year.