Tax Refunds to Hit a Record High This Year

As tax season approaches, many Americans are in for a pleasant surprise: their tax refunds are expected to be higher than usual. According to a report by Oxford Economics, this year’s refunds could reach levels not seen in years. Lead US Economist Bernard Yaros noted that over-withholding in 2024, due to significant tax bracket adjustments, is a key factor. This means those who didn’t receive substantial pay raises last year might find themselves enjoying a larger-than-expected refund.

Why This Year’s Refunds Are Larger

The increase in refunds can be attributed to the IRS’s inflation adjustments and the impact of the American Rescue Plan. With slower wage growth, the tax code adjustments were more generous, leading to higher refunds. The average refund in 2025 is projected to be around $2,169, the highest in recent years. This surge is particularly beneficial for those who didn’t withhold enough taxes and for low-income filers who may also qualify for additional tax credits.

How Americans Are Spending Their Refunds

When refunds arrive, Americans tend to boost retail sales, especially in February. Data shows increased spending in used cars, shoe stores, and discount shops. Interestingly, many use their refunds to pay off debts, as evidenced by lower credit card delinquency rates during tax season. This trend highlights how refunds are both a financial windfall and a tool for managing debt.

A Financial Boost for Low- and Moderate-Income Households

For low- and moderate-income households, tax refunds can be transformative. increased spending in used cars and discount stores indicates that these families are using their refunds to meet essential needs and make significant purchases. The relative size of refunds to their income makes this influx of cash particularly significant, offering a much-needed financial cushion.

A Little-Known Tax Break: The Saver’s Credit

The IRS is highlighting the Saver’s Credit, a tax break that could save eligible filers up to $1,000. Despite its potential, only 5.8% of eligible individuals claim it. This credit is especially beneficial for low- and moderate-income workers who contribute to retirement accounts. The deadline for IRA contributions is April 15, offering a last chance to maximize savings this tax season.

IRS Warns of Potential Refund Delays

The IRS cautions that certain filing options may delay refunds. Filing electronically and opting for direct deposit typically ensure timely payments, but other methods may slow things down. As tax season peaks, being mindful of these factors can help avoid delays and ensure that refunds arrive as expected.