Worried about a smaller income-tax refund? You’re not alone — and you’re probably not wrong.

Almost seven in ten taxpayers have at least one worry about their tax refund, according to the survey released early Wednesday from Bankrate.com.

Among these concerned taxpayers, roughly one-third say they are worried how far their refund will go while inflation slowly cools. A similar percentage say that refund payouts will be smaller this year.

Overall, 69% of people say they have at least one worry about their refund. That’s up slightly from the 67% a year ago.

Now for the bad news. The average refund amount was $3,140, according to IRS statistics through mid-February. The IRS has processed more tax returns than it did at the same point last year, and the average refund pay out is already 11% lower.

Overall, refunds last year were more than $3,200 on average, IRS figures show.
Certain tax provisions reverted to smaller payouts for the 2022 tax year after tax-year 2021 increases. The IRS and tax preparers have been cautioning people on potentially smaller payouts.

For example, the earned-income tax credit, a credit geared at low- and moderate-income households, shrunk from a maximum $1,500 payment to roughly $500 for workers without children. The child- and dependent-care credit fell to $2,100 from a maximum $8,000 payment for an eligible household with at least two dependents.

Younger people in Bankrate’s survey, between age 18 and 42, were more likely to say they had at least one worry about their refund. “It’s reasonable to expect that many people will receive smaller tax refunds this year,” Ted Rossman, Bankrate.com senior industry analyst, said in a statement.

Two common uses for savings are paying down debts and saving, according to the Bankrate survey and another recent survey from LendingTree.

But inflation is squeezing savings and deepening debts. Americans had $986 billion in credit-card debt during the fourth quarter, a sum that exceeds pre-pandemic levels, according to the Federal Reserve Bank of New York.

Maximizing refunds

As Flor Paulino prepares returns this filing season, she said she is “definitely” seeing smaller refunds. “There have been a lot complaints,” said Paulino, office manager of ATAX Willis Avenue, a Bronx, N.Y. location for ATAX, the national tax-preparation company.

Karla Dennis is seeing the same thing in California. “Refunds are coming in smaller and people are definitely starting to owe,” said Dennis, founder of Karla Dennis and Associates in La Palma, Calif.

But there’s still ways to maximize refund amounts, experts said.

“Organization is really the key,” said Dennis. Amassing all the needed tax documents and avoiding last-minute rushes lowers the chance of mistakes that can delay a refund or prompt questions from the IRS.

Taking the time to gather financial information can also help people spot potentially deductible transactions and expenses they might have forgotten in the past year.

For instance, teachers can deduct $300 in unreimbursed out-of-pocket expenses for work and small business owners have an array of deductible costs. Of course, they have to tally up all their expenses first.

Dennis recommends a “12 by 12” method. Clients devote one day to comb through the bank statements, credit-card statements and calendar events for one month. This way, “it doesn’t become this big mountainous task that you are dreading.”

There are still ways to lower your taxable income, like making deductible contributions to a traditional IRA, Paulino noted. (Of course, that will depend on factors including income and access to a retirement account at work.) The deadline for 2022 IRA contributions runs through April 18.

But there is also the chance that state tax rules might have credits and deductions ready to unlock more money — even if the federal tax code doesn’t allow it. For example, Dennis noted that the federal code currently doesn’t allow employees to deduct their unreimbursed business expenses, but California tax rules will allow tht deduction.

The state-level inflation relief checks last year also highlight the potential divide between state and federal income tax rules, she noted. The IRS has said in most cases, it will not count the payments for federal taxes. But Dennis said it’s a good move to be aware of any state specific tax rules, or check with a tax professional.

There’s another route for boosting cash access. Checking your withholdings will not maximize a refund. In fact, keeping more in every paycheck would shrink a refund. But having more money now might be of more use for people coping with rising costs, Paulino said.

People with questions on about whether to change their withholding may want to speak with a tax professional, she noted. Another option is the IRS’ own tax withholding estimator. “It’s either you get it upfront on every paycheck, or you get at the end when you file your taxes,” Paulino said.