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This article was fact-checked by our editors and reviewed by Troy Grimes, tax product specialist with Credit Karma Tax®.
Getting a federal tax refund might be as exciting for some as fireworks on the Fourth of July — and just as much of an American tradition.
In fact, 55% of respondents in a recent Credit Karma survey said they would rather get a refund and have less take-home pay throughout the year. While getting a tax refund means you overpaid your taxes throughout the year (and basically gave Uncle Sam an interest-free loan), you may look at a refund as a de-facto savings plan if you have a hard time saving money on your own. And of the 30% of survey respondents who said they plan to save most of the tax refund they get in 2020, more than half (51%) wanted to use the money to build their emergency savings.
A tax refund can be a significant windfall, but refund amounts can change from year to year as your financial situation and tax law evolve. That’s especially true with many of the big tax shake-ups of the past couple of years — changes that could continue to affect refunds in 2020.
- How has the average tax refund amount changed over the last few years?
- What might affect the size of the average tax refund this year?
- Can I change how much tax is withheld during the year?
You may have heard about the Tax Cuts & Jobs Act, which was the biggest overhaul of the tax system in decades. This massive law took effect in tax year 2018, meaning that most people noticed the biggest change when they filed their tax return in 2019.
During the 2019 tax filing season (when people were filing their 2018 federal income tax returns), the IRS released weekly reports on how the tax season was progressing. These reports included the average tax refund amount each week. There was a lot of shock in mid-February, early in the season, when it looked like the average tax refund was down by nearly a whopping 17%, compared to the year before with “normal” tax rules.
The IRS hasn’t released official numbers for the entire 2019 tax season yet. But by October 2019, the average 2018 tax refund was just 1.5% less than the 2017 average, according to IRS data.
|Tax year||Average tax refund
|Change from same time period in the previous year|
*As of Oct. 18, 2019
Time will tell whether the average tax refund for the 2019 tax year is more or less than last year’s. But some tax law changes that took effect in 2019 might impact refunds that will be issued in 2020 for 2019 taxes.
No more ACA penalty
Before tax reform in 2017, the Affordable Care Act, or ACA, required everyone to have health insurance coverage that met certain minimum standards — or face a penalty for choosing to forgo coverage. That penalty was up to 2.5% of their household income or the cost of the lowest-priced plan available through the health exchange marketplace.
But the Tax Cuts and Jobs Act of 2017 set the penalty amount to zero as of Dec. 31, 2018. That means if you didn’t have health insurance coverage in 2019, you won’t have to pay a penalty (although not having health insurance could cost you a pretty penny if you get sick or injured and do need healthcare).Learn what expenses qualify for the medical expense deduction
No more alimony payment deductions or reporting in income
Alimony paid to a former spouse used to be tax deductible for those making the payments. And if you received alimony payments, you were expected to report the money as taxable income on your tax return.
Going forward, this changes due to the new tax law passed in 2017. For people who divorce or formally separate after Dec. 31, 2018, or who make a qualifying modification to an existing alimony agreement, alimony payments are no longer tax deductible. And if you’re on the receiving end of an agreement settled after that cutoff date, you won’t have to report the alimony as income.
Two main factors influence whether you get a refund and the size of any refund you may be due — your total tax liability for the year and how much tax you’ve paid throughout the year.
If you pay more than your tax obligation for the year, you could get a refund. And the more you overpay taxes, the bigger the tax refund you’ll likely get. Conversely, if you underpay your taxes, you could owe come April 15 — including a late-payment penalty if you’ve underpaid by more than 10% of your total obligation.
Getting your withholding amount as precise as possible has advantages, the IRS says, including helping you avoid an unexpected tax bill or penalty when you file and increasing your take-home pay throughout the year. But if you’re one of the many Americans who prefers to get a tax refund, you can easily adjust your tax withholding by re-submitting a new Form W-4 with your employer. Simply write in how much extra you want withheld from each paycheck on Line 6 of the W-4, and then hand it back to your employer.
The average refund amount has varied over time, and many factors can influence how much of a refund you might get — or if you even get one at all. The important thing to remember is that you do have some control over whether you get a refund. You can make adjustments to your withholdings and/or make estimated tax payments throughout the year to get as close to your actual tax obligation as you like.
Paying more than you owe may net you a refund. Paying less can add up to a bill come Tax Day. And getting it exactly right can mean you keep more money in your pocket throughout the year rather than letting the federal government use it interest-free for 12 months.
Troy Grimes is a tax product specialist with Credit Karma Tax®. He’s worked in tax, accounting and educational software development for nearly 30 years. He has a bachelor’s degree in business administration with an emphasis in business analysis from Texas A&M University. You can find him on LinkedIn.