Tax Refund Season Off To Slow Start: Total Payments 30% Below 2017-2019 Average

One of the unspoken reasons behind the powerful reflationary wave of 2022 - and even more remarkable spending spree by US households last year - was the generous helping of tax refunds issued by the IRS, well above previous years. But don't expect that to repeat in 2023.

Tax filing season began on January 23, and we are now entering the period of the year in which tax refunds made by the IRS hit the pockets of households. According to UBS economists, around half of year tax refunds paid by the IRS are disbursed in February and March. They total about $200bn - roughly 6% of disposable income in these months.

However, the main reason why refunds will be lower this year than last year is because of the expiration of the 2021 expanded Child Tax Credit, which boosted tax refunds during the 2022 tax season.

Indeed, as shown in the chart below, Refunds so far this year have been slow to pick up. Cumulative payments made so far are about 30% below the 2017-19 average for this time of the year, although it is still early in the refund season.

And while refunds have so far been higher than in 2022, there were processing delays last year. In the end, 2022 tax refunds ended up about 20% higher than in previous years, although the process was slow.

In February 2022 refunds paid were 27% lower than the 2017-19 average for February. This year there are still some delays, but they are less pronounced than last year.

The average refund paid is so far 10% lower than at the same point in time last year. This is one of the reasons why UBS is confident that the high level of refunds  we saw in 2022 will not be repeated.