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The Average Federal Tax Refund in 2024: Its Importance & Why Yours Might Be Low

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Tax season is upon us again, and with it comes the anticipation of that coveted tax refund. As April approaches, many Americans prepare to file taxes and eagerly await tax refunds. However, the size of these refunds can vary from person to person.

April 17, 2024
Author: NCH

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The average federal tax refund in 2024 holds particular interest as US taxpayers aim to understand how changes in tax laws, income, and various deductions may impact their refunds.

Understanding the Federal Tax Refund

A federal tax refund is the amount of money returned to an individual by the government when their tax liability is less than the amount they have paid in taxes through withholding or estimated payments. This refund can be attributed to various factors, such as overpayment of taxes, tax credits, or deductions claimed during the filing process.

Why It Matters

Tax refunds help people pay off debts or handle different expenses such as personal ventures, vacations, purchases, and investments. The tax refund may also be the most substantial lump sum they receive all year, making it instrumental to the financial planning process.

Key Factors Influencing Your Tax Refund

In 2024 the average federal tax refund is expected to be around $3,145. However, this figure can vary significantly depending on many things, such as the following:

Income Level

Your income level and corresponding tax bracket directly impact your tax liability and, consequently, your tax refund. Taxpayers with higher incomes typically fall into higher tax brackets, resulting in a larger tax burden. Conversely, lower-income individuals may qualify for various tax breaks and credits, resulting in a larger refund.

Changes in Tax Laws 

US tax laws are constantly evolving, and changes made by the government can directly affect the amount of money you receive back from the government. For instance, adjustments to tax brackets, standard deductions, and eligibility criteria for certain credits can result in a higher or lower tax refund, depending on your individual circumstances. 

Filing Status

Whether you file as single, married filing jointly, married filing separately, or head of household, your filing status may affect your tax liability and eligibility for certain deductions and credits. Married couples filing together may benefit from lower tax rates and higher standard deductions, potentially increasing their refund more than couples who file separately.

Adjustments to Withholding 

Your employer withholds a portion of your paycheck to cover your federal income taxes. If you’ve had big changes in your income or personal circumstances during the year, such as getting married, having a child, or changing jobs, you may need to adjust your withholding accordingly. Failing to do so can result in either underpayment or overpayment of taxes.

Tax Deductions & Credits

Deductions and credits can significantly reduce your taxable income and increase your tax refund. However, if you fail to claim all the deductions and credits you’re eligible for, you could be leaving money on the table. Common deductions and credits include mortgage interest, charitable contributions, education expenses, and child tax credits.

Ways to Maximize Your Tax Refund

While there’s no guaranteed way to increase your tax refund, there are several strategies you can utilize to get the most out of your refund potential:

Tip #1: Stay Informed 

Keep yourself updated on changes to tax laws and regulations. Understanding how these changes impact your tax situation can help you make informed decisions about your finances and tax planning strategies and take advantage of available deductions and credits.

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Tip #2: Plan Ahead 

Don’t wait until the last minute. Gather all the necessary documents early to avoid any unnecessary delays or errors in filing. Planning ahead can also give you time to explore tax-saving opportunities, like contributing to retirement accounts or making charitable donations.

Tip #3: Review Your Filing Status 

Your filing status can impact your tax liability and refund amount. Married couples may benefit from joint or separate filings depending on their circumstances. Be sure to choose the filing status that results in the lowest tax bill and highest refund.

Tip #4: Review Your Withholding

Periodically review your withholding to ensure you do not have too much or too little tax withheld from your paycheck. Adjusting your withholding with a professional’s help can help you achieve a balance and avoid any surprises come tax time.

Tip #5: Keep Accurate Records 

There are many ways to maintain organized records of your income, expenses, and deductions throughout the year. Accurate documentation will make it easier to claim deductions and credits when it’s time to file your taxes, potentially resulting in a larger refund.

The Importance of Tax Planning

Although receiving a large tax refund can be exciting, remember that it’s basically your own money being returned to you. Instead of viewing it as a windfall, consider adjusting your withholding to more accurately reflect your tax liability throughout the year.

Strategic tax planning can maximize your tax refund by taking advantage of available deductions and credits. Working with a qualified tax professional will ensure you’re making the most of your tax situation and optimizing your refund.

Final Thoughts

Income level, filing status, deductions and credits, withholding, and changes in tax laws all contribute to the final amount of a taxpayer’s refund. By understanding these factors and implementing strategic tax planning strategies, you will be able to maximize your refund potential and keep more money in your pocket come tax time.

Consider partnering with NCH to streamline your tax planning process and achieve your financial goals effectively. By working with us, you can leverage our expertise and resources to enhance your tax planning strategies, minimize tax liabilities, and maximize refunds. 

Call us at 1-800-508-1729 or visit our website to book your free consultation now!

DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.

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