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The IRS Reports Smaller Average Tax Refunds for Last Year

According to the IRS, the average tax refund is smaller than last year, and there are several reasons why. The average refund for the 2021 tax year is $2,868, which is down by $273 from the previous year. This has been attributed to several factors, including changes to tax laws, the impact of the COVID-19 pandemic, and the increased popularity of gig work. One of the main reasons for the smaller refund is the changes made to tax laws under the Tax Cuts and Jobs Act of 2017. This law reduced the tax rates for most taxpayers but also eliminated certain deductions and exemptions, which resulted in many taxpayers receiving smaller refunds. Additionally, some taxpayers may have been underwithheld during the year due to changes in withholding tables resulting from the tax law changes. Another factor contributing to the smaller refunds is the impact of the COVID-19 pandemic.

The pandemic led to widespread job loss and economic uncertainty, which caused many people to adjust their withholding or to withdraw money from their retirement accounts early, resulting in additional tax liabilities. In addition, the stimulus payments provided by the government were not taxable, but they may have affected tax credits and deductions, resulting in smaller refunds. The rise of gig work has also contributed to the decrease in average tax refunds. Gig workers are often classified as independent contractors and are responsible for paying their own taxes. Many gig workers may not have realized this and failed to pay estimated taxes throughout the year, resulting in a lower refund or even owing taxes. Taxpayers can take steps to maximize their refund, such as reviewing their withholdings and making adjustments as needed.

They can also take advantage of tax credits and deductions, such as the Earned Income Tax Credit. Taxpayers should also keep accurate records and receipts to support any deductions they claim and consult with a tax professional if they have any questions. It's important to remember that the size of the tax refund is not a reflection of one's overall tax liability. Taxpayers who receive smaller refunds may have paid less in taxes throughout the year and may have even avoided penalties and interest for underpayment. Additionally, taxpayers who owe taxes should pay them promptly to avoid additional fees and interest charges. In conclusion, the average tax refund is smaller than last year due to changes in tax laws, the impact of the COVID-19 pandemic, and the increase in gig work.

Taxpayers can take steps to maximize their refund, such as reviewing their withholdings and taking advantage of tax credits and deductions. It's important to remember that the size of the refund is not a reflection of one's overall tax liability, and taxpayers should consult with a tax professional if they have any questions or concerns.