The 2014 tax season is underway, and the IRS has released some statistics that show how things are progressing this season.
According to the IRS, through February 14, 2014, the number of tax returns filed is down slightly as compared to the same time period in 2013. However, there have been some interesting differences. First of all 95 percent of the tax returns filed so far have been done so electronically. It appears that the push by the IRS in recent years to encourage electronic filing has been working.
It probably helps that taxpayers know that they will receive their refunds faster if they file electronically. It makes sense to file early when you are expecting a refund (and it may make sense to file early to prevent tax return fraud, even if you don’t expect a refund), and you’ll get it faster with the combination of electronic filing and direct deposit.
Higher Amount of Tax Refund
The average tax refund amount is also higher this year. The amount of the tax refund that the average filer sees is $3,211, which represents an increase of $190 as compared to the average refund a year ago. So, in spite of concerns about rising taxes and the Affordable Care Act, many tax filers are seeing higher refunds.
Of course, these filers may not be high earners, who are more likely to be hit by the additional taxes that come with the implementation of the Affordable Care Act. Additionally, these are the 2013 taxes, which don’t account for the individual penalty charged to those who don’t have insurance coverage. That penalty won’t affect taxpayers until next year.
Should You Try for a Higher Tax Refund?
With the average tax refund on the rise, many people wonder if this is something that they should aspire to.
First of all, if you have a higher tax refund coming this year, consider why it has increased. Has your income dropped for some reason, without you changing your withholding? Or have you been able to take advantage of new tax breaks? Identify the reason that your tax refund has increased, and then decide whether or not that change is permanent. If it’s permanent, you might want to reduce your withholding so that you can see that money in your regular paycheck.
In some cases, though, it makes more sense to try for a higher tax refund. Even though it amounts to an interest-free loan for the government, the reality is that many people aren’t going to put the money to work effectively if it comes in a small amount via paycheck. The tax refund amounts to a sort-of “forced savings” in which the larger amount can be put to use more effectively. Think about what sort of return you’d really get if you had that money throughout the year, and be realistic about what you’d truly accomplish. When you are honest about it, chances are that the bigger tax refund will benefit you.