2024 Tax Returns Are Declining—Here's What Taxpayers Need to Know

The 2024 tax filing season has brought unexpected news: tax returns are getting significantly smaller. As of early February 2024, the IRS reported an average refund of just $1,395, marking a concerning 29% drop from the previous year. This figure stands even lower than the $1,741 average initially projected, which itself represented a 13% decline from 2023’s overall seasonal average of $3,252.

While these early-season statistics are based on a limited sample period—only five days compared to twelve days the previous year—IRS data suggests a broader trend toward reduced refunds for many American taxpayers in 2024.

Why Tax Returns Are Shrinking This Year

Understanding why tax returns are smaller in 2024 requires examining multiple contributing factors. The reasons are diverse and interconnected, affecting different groups of workers differently.

Income Growth and Withholding Adjustments

One primary factor affecting tax returns in 2024 is income changes. Some employees received salary increases but failed to adjust their tax withholding forms accordingly. Conversely, others intentionally worked with HR departments to reduce the amount withheld from their paychecks, meaning less money was held by the IRS throughout the year. While this approach puts cash in workers’ hands sooner, it results in smaller refunds when filing time arrives.

The Gig Economy’s Growing Impact

The expansion of the gig economy represents another significant factor influencing tax returns. Gig workers typically earn income without traditional employer tax withholdings, relying instead on estimated quarterly tax payments. Many gig workers maintained the same estimated tax payment amounts despite earning more, leading to either minimal refunds or additional taxes owed.

Investment Income and Market Performance

Stock market growth in recent years has increased investment income for many filers. Those who realized capital gains or received dividend income faced higher tax liabilities in 2024, directly reducing their refund amounts. This factor particularly affects taxpayers with diversified investment portfolios.

Inflation and Standard Deduction Changes

Interestingly, inflation-driven adjustments to standard deductions and tax brackets in 2024 created a mixed effect. While some taxpayers benefited from these adjustments, others found their tax situations more complex, particularly if their financial circumstances remained unchanged from the previous year.

The Data Behind Shrinking Tax Returns

The IRS released substantial data supporting the decline in tax returns for 2024. As of February 2nd, the agency had issued over 2.6 million refunds totaling $3.65 billion. The average refund of $1,395 represents a notable decrease that has prompted industry experts to warn against premature conclusions.

Mark Steber, Chief Tax Information Officer at Jackson Hewitt, cautioned that early filing data may not reflect the full picture. Many taxpayers who typically receive larger refunds—particularly those claiming child tax credits and earned income tax credits—have not yet filed. The IRS legally withholds these refunds until at least February 27th, suggesting that final averages may shift as the filing season progresses.

However, the trend toward reduced tax returns appears genuine. Several contributing factors explain why 2024 tax returns are declining:

Changes in filing status or dependent claims significantly impact refund amounts. Individuals who experienced employment transitions, career changes, or shifts in self-employment income often see different refund outcomes. Additionally, life events such as property sales or marital status changes can substantially affect tax liability and refund amounts.

Limited tax credits play a crucial role as well. Credits like the Earned Income Tax Credit, Child Tax Credit, and Dependent Care Credits directly influence refund size. Any changes to an individual’s eligibility for these credits can result in dramatically different refund amounts.

Are Smaller Tax Returns Necessarily Bad News?

While receiving a smaller refund feels disappointing, financial experts suggest the situation may not be entirely negative. A reduced refund essentially means less money was unnecessarily withheld by the IRS throughout the year. If a taxpayer received $600 less in a refund compared to previous years, that translates to approximately an extra $50 in their paycheck each month.

From this perspective, smaller tax returns can indicate that workers are achieving better cash flow during the year rather than loaning money interest-free to the government. However, this positive interpretation only applies if taxpayers manage their finances responsibly throughout the year.

The concern emerges when individuals rely on large refunds to cover essential expenses, pay down debt, or fund discretionary purchases. Those dependent on annual refunds for financial stability face increased challenges with reduced amounts.

Implications for Different Taxpayer Groups

The reasons tax returns are lower in 2024 vary by taxpayer category. Some groups are more significantly affected than others:

Employees with recent salary increases may see substantially reduced refunds if they didn’t adjust withholdings. Self-employed individuals and gig workers face particular uncertainty, as estimated tax payments require accurate income projections. Investors benefiting from market growth may owe more taxes than anticipated. Those claiming education-related credits or dependent claims should monitor policy changes, as pending Congressional tax legislation may retroactively affect 2023 refunds and 2024 filings.

Strategies for Managing Lower Tax Returns

Taxpayers concerned about reduced refunds in 2024 should consider several practical steps:

First, file early using electronic filing methods to accelerate processing. Selecting direct deposit further reduces payment delays. Most importantly, verify that all information is accurate before submission—errors create processing delays that further reduce available funds.

For those planning major expenses or debt repayment, avoiding reliance on refund timing becomes essential. Instead, workers should evaluate their withholding amounts and adjust them upward if they prefer larger refunds, or maintain lower withholdings if they prefer greater monthly cash flow.

IRS Commissioner Danny Werfel urged taxpayers to file promptly, though recent surveys indicate many plan to delay filing until March or later, citing stress and the complexity of current tax situations.

Looking Forward

Tax returns in 2024 represent a complex landscape influenced by inflation adjustments, income fluctuations, changing life circumstances, and broader economic factors. While average refunds are declining, this outcome reflects a mix of positive developments—higher incomes, investment growth—alongside structural changes in how Americans work and earn.

Understanding why tax returns are lower this year empowers taxpayers to plan ahead, adjust withholdings strategically, and make informed financial decisions. Rather than viewing smaller refunds as purely negative, workers can reframe the situation as an opportunity to maintain better cash flow throughout the tax year while ensuring accurate tax compliance.