Gen Z Is Banking on Bigger Tax Refunds This Year. Here's Why They Shouldn't
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Gen Z is the most likely age group to expect a big tax refund from the IRS this year — but they might be in for a surprise when the check rolls in.
This tax season, younger folks especially are expecting their tax refunds to be larger than last year’s: 45% of Gen Z adults are banking on higher refunds, and 44% of millennials said the same, according to a new survey from personal finance management app Credit Karma.
It’s not just young taxpayers, though. Of all respondents, 29% reported that they believe their refunds will be bigger in 2023. The results are based on a December poll of more than 1,000 U.S. adults. (Gen Z ages range from 8 to 26, but the Gen Z adults polled in this survey are aged 18 to 26.)
However, these hopeful taxpayers might be disappointed. The IRS recently warned that refunds may be smaller in 2023 mostly due to expirations or reductions in pandemic-era tax benefit programs. The most notable bygone initiative is the Economic Impact Payments — aka stimulus checks. The IRS sent out the last official round of federal stimulus checks in 2021, but many eligible folks didn't claim the amount they were owed until they filed taxes last year.
That alone boosted the tax refunds for millions of Americans. The expanded child tax credit, which provided parents with up to $3,600 per child, also padded the numbers. (Unlike the stimulus checks, the program still exists, albeit in its pre-pandemic form of a credit up to $2,000 per child.)
IRS data shows the average tax refund paid out last tax season was indeed much higher than previous years. For example, the average refund as of Oct. 28 was $3,176, nearly a 14% increase from the previous year’s refund of $2,791. In 2020, the average refund was about $2,550.
When it comes to tax refunds, bigger does not necessarily mean better. Some experts note that your tax refund is essentially an interest-free loan that you're providing to the federal government and that by adjusting your tax withholdings, you could be putting that money to use throughout the year in the form of larger paychecks. It ultimately depends on your financial preferences: an annual windfall or slightly bigger pay day?
Credit Karma’s poll shows that about a third of Americans (30%) regardless of age depend on their refunds to make financial ends meet — though here, too, the trend is more prevalent for the younger generations. Some 46% of millennials and 40% of Zoomers reported that they are dependent on their tax refunds.
Relying on a tax refund to cover the basics like bills can be risky, in large part because it’s difficult to know when exactly the refund will arrive.
“The IRS cautions taxpayers not to rely on receiving a 2022 federal tax refund by a certain date especially when making major purchases or paying bills,” the agency stated in November. “Some returns may require additional review and may take longer.”
On Thursday, the IRS announced the official start of tax season is Jan. 23, the date the agency will begin processing returns. Filing early, submitting an electronic return and signing up for direct deposit are tried-and-true strategies to get a speedy refund.
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