Average Tax Refund Spikes 14% to $4,264, With 40% of Filers Relying on Money

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Tax season is here again. As April deadlines approach, we analyzed where taxpayers got the biggest average refunds for tax year 2021, based on new data released in late February 2024.

Across the U.S., refunds spiked a significant 14% year over year. That may paint a hopeful picture for Americans with tight budgets, particularly as nearly 40% say their financial situation is closer to the worst of times rather than the best, according to a LendingTree survey.

Here’s what else we found.

  • The average refund for tax year 2021 — the latest available full-year data — was $4,264, up 14% from $3,745 for tax year 2020. Refunds are up a larger 17% from tax year 2019, when the average was $3,651.
  • Among those receiving refunds, Wyoming residents had the biggest average for the fourth year in a row. Wyoming residents with refunds saw an average of $5,914, up 21% from the $4,877 they received for tax year 2020. However, Wyoming taxpayers who owed money saw the biggest bills for tax year 2021 — $10,551, on average.
  • Maine taxpayers saw the smallest refunds for tax year 2021 — also for the fourth year in a row. Those receiving refunds got an average of $3,144. That’s up 8% from tax year 2020, when Maine taxpayers received an average of $2,920. As for taxes owed, West Virginia taxpayers shelled out the least for tax year 2021, paying an average of $5,344.
  • A higher percentage of American tax filers are reliant on refunds this year than before. Of the 83% of Americans who plan to file federal income tax returns this year, 40% are relying on a refund — an increase from 36% last year. Meanwhile, 49% say they’re not relying on a refund, though getting one would be a nice surprise. Just 7% say they don’t like to get a refund because it means they overpaid throughout the year.
  • If filers get refunds, many will put the extra cash toward debt payments. When asked how they’d use a refund if they got one, 44% of filers would pay off debt — the most common response. Meanwhile, 43% would put that cash into savings and 15% would put it toward a significant purchase such as a house or car. Overall, 46% of filers expect their refunds to be less than $1,000, while 26% expect to get back between $1,000 and $2,999. Just 12% think they’ll owe money.

For tax year 2021 (the latest available full-year data, released in late February 2024), the average refund was $4,264. That’s up 14% from $3,745 for tax year 2020. According to LendingTree chief credit analyst Matt Schulz, COVID-19 likely plays the biggest role in this spike.

“COVID-19 turned everything upside down, and with all that upheaval came pandemic-era tax breaks that led to more people having bigger returns,” he says. “Also, it’s possible that high unemployment during that period led to people falling into lower tax brackets, changing their tax liability overall.”

Expanded child tax credits may also be a factor. According to the IRS, the child tax credit increased at the end of 2021 from $2,000 per qualifying child to:

  • $3,600 for children 5 and younger
  • $3,000 for children 6 through 17

Additionally, student loan forgiveness may have impacted refunds. While forgiven or canceled debt is typically taxable income, the American Rescue Plan Act (ARPA) made student loan forgiveness exempt from federal taxes through 2025.

Going back further, the average refund for tax year 2019 was $3,651 — meaning that refunds for tax year 2021 were up 17% from tax year 2019.

As for where tax filers got the biggest refunds, Wyoming residents ranked first for the fourth year in a row. Those receiving refunds in the state got an average of $5,914 for tax year 2021. That’s a significant 21% boost from the $4,877 they received for tax year 2020.

To put that in perspective, Wyoming filers receiving refunds got an average of $5,027 for tax year 2019 — meaning refunds fell 3% from tax year 2019 to tax year 2020.

Following Wyoming, the District of Columbia had the second largest refunds for the second year in a row, with residents receiving an average of $5,381. That’s up 21% from $4,462 for tax year 2020 and 24% from $4,356 for tax year 2019.

States with the largest average refunds for tax year 2021

Rank State Average refund for tax year 2021
1 Wyoming $5,914
2 District of Columbia $5,381
3 Massachusetts $5,078

Source: LendingTree analysis of federal individual income tax returns (Form 1040s) filed from Jan. 1 through Dec. 31, 2022, for tax year 2021, via the IRS’ Statistics of Income program.

Massachusetts rounded out the top three, with an average refund of $5,078. That’s a 23% jump from $4,119 for tax year 2020, when Massachusetts had the seventh-largest average refund. However, that’s a slightly smaller 22% increase from the average refund Massachusetts filers received for tax year 2019 ($4,175).

While Wyoming taxpayers who received refunds had the biggest checks, those who owed money in the state also saw the biggest average bill for tax year 2021. On average, Wyoming taxpayers owed $10,551 to Uncle Sam. For the prior tax year, Wyoming had the second-largest average bill, at $8,549.

States with the largest average bills for tax year 2021

Rank State Average owed for tax year 2021
1 Wyoming $10,551
2 Washington $10,057
3 Nevada $9,878

Source: LendingTree analysis of federal individual income tax returns (Form 1040s) filed from Jan. 1 through Dec. 31, 2022, for tax year 2021, via the IRS’ Statistics of Income program.

Washington taxpayers saw the next largest bills, with an average of $10,057. That’s also a bump from tax year 2020, when Washington ranked third, with an average bill of $8,452. Nevada ranked next, with an average bill of $9,878 — up from ninth for tax year 2020 with an average bill of $7,858.

Full rankings

States with the largest/smallest average refunds for tax year 2021

Rank State Average refund
1 Wyoming $5,914
2 District of Columbia $5,381
3 Massachusetts $5,078
4 Florida $5,005
5 New York $4,981
6 Nevada $4,884
7 Connecticut $4,877
8 Texas $4,753
9 California $4,671
10 Louisiana $4,617
11 Illinois $4,493
12 New Jersey $4,490
13 Georgia $4,272
14 Washington $4,190
15 Utah $4,187
16 Colorado $4,123
17 North Dakota $4,102
18 Arkansas $4,098
19 Maryland $4,076
20 Mississippi $4,067
21 Virginia $3,993
22 Alabama $3,986
23 Arizona $3,963
24 Alaska $3,960
25 Tennessee $3,949
26 Oklahoma $3,946
27 South Dakota $3,899
28 Kansas $3,837
29 Hawaii $3,835
30 New Hampshire $3,803
31 Idaho $3,796
32 Michigan $3,790
33 South Carolina $3,775
34 Pennsylvania $3,765
35 Missouri $3,740
36 Nebraska $3,714
37 Delaware $3,667
38 Montana $3,666
39 North Carolina $3,652
40 Indiana $3,650
41 Ohio $3,571
42 Kentucky $3,562
43 Rhode Island $3,558
44 Minnesota $3,534
45 Wisconsin $3,479
46 Iowa $3,476
47 New Mexico $3,454
48 Oregon $3,422
49 Vermont $3,407

Source: LendingTree analysis of federal individual income tax returns (Form 1040s) filed from Jan. 1 through Dec. 31, 2022, for tax year 2021, via the IRS’ Statistics of Income program.

States with the largest/smallest average bills for tax year 2021

Rank State Average owed
1 Wyoming $10,551
2 Washington $10,057
3 Nevada $9,878
4 Massachusetts $9,746
5 Florida $9,528
6 South Dakota $9,485
7 Idaho $9,050
8 California $9,038
9 New Hampshire $8,980
10 Montana $8,951
11 Connecticut $8,930
12 North Dakota $8,910
13 Texas $8,759
14 District of Columbia $8,396
15 Utah $8,361
16 Colorado $8,296
17 Tennessee $8,288
18 New Jersey $8,131
19 New York $7,758
20 Nebraska $7,611
21 Georgia $7,596
22 Illinois $7,328
23 Pennsylvania $7,327
24 Arizona $7,290
25 Kansas $7,128
26 Oregon $7,125
27 Virginia $7,121
28 Louisiana $7,086
29 Missouri $7,059
30 Alabama $7,018
31 Vermont $6,991
32 North Carolina $6,945
33 Maine $6,619
34 South Carolina $6,558
35 Minnesota $6,549
36 Arkansas $6,478
37 Indiana $6,474
38 Maryland $6,420
39 Rhode Island $6,371
40 Hawaii $6,348
41 Alaska $6,305
42 Oklahoma $6,293
43 Delaware $6,219
44 New Mexico $6,038
45 Ohio $6,017
46 Wisconsin $5,971
47 Michigan $5,953
48 Kentucky $5,910
49 Mississippi $5,861
50 Iowa $5,670
51 West Virginia $5,344

Source: LendingTree analysis of federal individual income tax returns (Form 1040s) filed from Jan. 1 through Dec. 31, 2022, for tax year 2021, via the IRS’ Statistics of Income program.

Conversely, Maine had the smallest average refund for tax year 2021, solidifying its ranking for the fourth year in a row. Taxpayers receiving refunds got an average of $3,144 — up 8% from an average of $2,920 for tax year 2020 and 14% from an average of $2,752 for tax year 2019.

West Virginia followed, with those receiving refunds getting back an average of $3,251. For the previous tax year, West Virginia had the fourth-smallest average refund, at $3,102. While West Virginia dropped in the rankings, refunds in the state rose 5%.

Vermont ranked third, with taxpayers receiving refunds in the state getting back $3,407, on average. Still, that’s up 8% from the $3,143 they received for tax year 2020.

States with the smallest average refunds for tax year 2021

Rank State Average refund
1 Maine $3,144
2 West Virginia $3,251
3 Vermont $3,407

Source: LendingTree analysis of federal individual income tax returns (Form 1040s) filed from Jan. 1 through Dec. 31, 2022, for tax year 2021, via the IRS’ Statistics of Income program.

Good news for West Virginia taxpayers: Despite receiving some of the lowest average refunds, taxpayers here also shelled out the least for tax year 2021. On average, those who owed money paid $5,344. That’s the second year West Virginia taxpayers owed the least.

States with the smallest average bills for tax year 2021

Rank State Average owed
1 West Virginia $5,344
2 Iowa $5,670
3 Mississippi $5,861

Source: LendingTree analysis of federal individual income tax returns (Form 1040s) filed from Jan. 1 through Dec. 31, 2022, for tax year 2021, via the IRS’ Statistics of Income program.

Iowa followed, with taxpayers owing an average of $5,670. Mississippi rounded out the three here, with taxpayers owing an average of $5,861.

Looking at now, a higher percentage of American tax filers are reliant on refunds this year than before, according to a LendingTree survey of more than 2,000 consumers. Of the 83% of Americans who plan to file federal income tax returns this year, 40% are relying on a refund. That’s an increase from the 36% who said similarly last year.

According to Schulz, that figure is concerning but not necessarily surprising. “Stubborn inflation, rising interest rates and a host of other economic factors have conspired to make Americans’ financial margin for error very small,” he says. “That can lead to people leaning more on their tax refunds than they otherwise might.”

By generation, millennials ages 28 to 43 are the most likely to rely on a refund, at 53% — the only age group with more than half sharing this sentiment. That’s followed by:

  • Gen Zers ages 18 to 27 (41%)
  • Gen Xers ages 44 to 59 (40%)
  • Baby boomers ages 60 to 78 (21%)

Meanwhile, those with children younger than 18 (56%) are significantly more likely to rely on a refund than those without children (36%) and those with children 18 or older (27%). By income group, those earning less than $30,000 (49%) are the most likely to say similarly, while six-figure earners (33%) are the least likely.

Additionally, men (42%) are more likely to rely on a refund than women (38%).

Not everyone is relying on a refund, though. In fact, 49% say they’re not relying on one, but getting one would be a nice surprise. That’s especially true among baby boomers (59%), those with children 18 or older (57%) and six-figure earners (55%). Beyond that, 7% say they don’t like to get a refund because it means they overpaid throughout the year.

If they got a refund, taxpayers would prioritize paying off debt. In fact, 44% of filers would pay off debt with a potential refund, while 43% would put that cash into a savings account. Following that, 15% would put it toward a significant purchase such as a house or car.

Schulz believes these are perfectly reasonable uses for a tax refund.

“The best use for that money depends on your circumstances and goals, and there doesn’t have to be one way you use it,” he says. “If your emergency fund is low or nonexistent and you’re struggling with credit card debt, use that refund to improve both those situations. Yes, it may take a little longer or cost a bit more to wipe out that debt, but it’ll be worth it in the long run because it can break the cycle of debt that so many people find themselves in. That’s because your next unexpected expense once your debt is down to $0 won’t have to go right back on the credit card. That’s a big deal.”

Across the age groups, millennials and Gen Xers are the most likely to prioritize debt payments, at 50% for both. Meanwhile, Gen Zers (45%) and baby boomers (44%) are the most likely to put that money toward their savings.

How much do taxpayers expect to get back? Of those who plan to file, 46% think they’ll get a refund of less than $1,000, with those earning less than $30,000 (65%), baby boomers (57%) and those without children (56%) having the lowest expectations. Meanwhile, 26% expect to get back between $1,000 and $2,999, and just 12% think they’ll owe money.

Notably, those with children younger than 18 are the most likely to expect refunds of $3,000 or more, at 33%. Comparatively, just 16% of all taxpayers say similarly.

When it comes to doing your taxes, getting a refund may offer some relief — so long as you use it well. Schulz offers the following advice:

  • Take advantage of high-yield savings accounts. “If you’re getting a refund and saving some of it, don’t settle for any return,” he says. “Today’s high-yield savings accounts are giving savers 4% or 5% or even bigger returns on their savings. So if you haven’t shopped around for a new savings account in years, chances are you’re leaving money on the table. That’s the last thing anyone needs to do today.”
  • Consider adjusting your withholdings. “That big refund can feel great, but by getting one, you’re essentially giving the government an interest-free loan,” Schulz says. “Sounds a lot less appealing, doesn’t it? If the refund is small, it isn’t a big deal. But if you’re getting a sizable refund, it may make sense to adjust your withholdings to keep a bit more of your money.”

LendingTree researchers analyzed federal individual income tax returns (Form 1040s) filed from Jan. 1 through Dec. 31, 2022, for tax year 2021 — the latest full-year data available — from the IRS’ Statistics of Income program.

To estimate the average refund in the U.S. and each state, researchers divided the total amount refunded by the number of people who received refunds. To estimate the average amount owed, researchers divided the total amount owed by the number of people who owed taxes.

Additionally, LendingTree commissioned QuestionPro to conduct an online survey of 2,035 U.S. consumers ages 18 to 78 from Feb. 1 to 5, 2024. The survey was administered using a nonprobability-based sample, and quotas were used to ensure the sample base represented the overall population. Researchers reviewed all responses for quality control.

We defined generations as the following ages in 2024:

  • Generation Z: 18 to 27
  • Millennial: 28 to 43
  • Generation X: 44 to 59
  • Baby boomer: 60 to 78

Source

This article originally appeared on LendingTree and was syndicated by MediaFeed.

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This article originally appeared on LendingTree and was syndicated by MediaFeed.

Like MediaFeed's content? Be sure to follow us.