Key Takeaways
- The average tax refund in 2024 was $3,145, 4.5% lower than the 2023 average.
- Factors that contribute to your tax refund include tax deductions, credits and exemptions.
- You can estimate your tax refund by finding our your taxable income for the year and your tax bracket.
While filing taxes can be time-consuming, a tax refund can feel like bonus income for many Americans. The average tax refund in 2024 (for the 2023 tax-filing year) was $3,145, down by 4.5% from the previous year.
In this guide, we’ll further explore those factors to best estimate your tax refund and go over smart ways to invest and maximize it.
Average Tax Refunds by Year
Tax refunds fluctuate slightly every year due to tax law changes, unemployment rates, and other factors. Below is a snapshot of the average tax refunds over the past five years.
| Year | Average Tax Refund |
| 2018 | $2,910 |
| 2019 | $2,869 |
| 2020 | $2,546 |
| 2021 | $2,816 |
| 2022 | $3,252 |
| 2023 | $3,293 |
| 2024 | $3,145 |
Many of my clients juggle both a W-2 job and a side hustle, often questioning whether they should make estimated tax payments to avoid a substantial tax bill during filing. To prevent surprises at tax time, one strategy is to allocate a portion or all of your tax refund to offset the current year’s taxes, reducing the amount owed in the next filing.
Peggy James, CPAIndependent Accountant and Financial CoachPeggy James is a certified public accountant with a Master of Accounting. She has spent the past several years of her career focused on working in higher education finance roles. Peggy also has accounting and finance experience working in the corporate and nonprofit sectors.
How To Estimate Your Tax Return
What you pay in taxes and receive back depends on many factors, including your income, the amount withheld each year, and if you qualify for any tax breaks.
Remember that you only receive a tax refund when you pay more taxes to your state or federal government than you have to. In this case, the refund is a check from the government for the amount you overpaid.
You can estimate your tax refund for the year with a few pieces of information and calculations.
Once you know your taxable income — your gross income minus all possible deductions — and tax bracket, you can make the best estimate of your return.
Depending on what tax deductions and credits you can qualify for, you can maximize your tax refund. Let’s take a deeper look at the two.
Deductions
Tax deductions allow you to subtract certain expenses from your income before filing taxes. For example, you may be able to deduct contributions to retirement plans or interest payments on your mortgage.
Tax Credits
Not to be confused with deductions, tax credits are subtracted from the amount you owe in taxes and reduce your total tax liability. Unlike deductions, tax credits are the same for everyone eligible — the value of deductions depends on your marginal tax rate.
Below are a few common tax credits taxpayers may be able to claim:
- Child Tax Credit (CTC):
- for taxpayers who claim children under 18 years of age as a dependent
- Earned Income Tax Credit (EITC):
- for low-income individuals or families who meet certain requirements
- Education Credits:
- for qualifying educational expenses such as tuition
FAQs
You generally have to pay taxes on any investment income, such as dividends or selling stock shares, which will most likely reduce your tax refund. Fortunately, you may be able to qualify for tax exemptions and deductions. Tax-sheltered investments, such as retirement accounts and health savings accounts, typically provide these tax deductions and exemptions.
If you’re unsure if you qualify for certain tax credits and deductions, it may be in your best interest to hire a CPA or tax professional. They can provide expert and personal tax advice for your unique situation.
While a sizable tax refund is nice, it could mean you’re paying more in taxes each year than needed. On the contrary, owing the IRS taxes during filing most likely means not enough is withheld from your income.
A tax refund can help with your financial goals, but remember that receiving one means you’ve paid more than you need to in taxes. This mistake prevents you from making the most of your income throughout the year. If you’re unsure how much taxes you should pay during filing season, a trusted financial advisor can help.
