Average tax refund up $200 for early filers

updated 5:57 p.m. ET March 2, 2005

WASHINGTON - Federal tax refunds have jumped an average $200 for early filers, the Internal Revenue Service reported Wednesday. The average refund grew to $2,436 for tax returns filed through last Friday, up 9 percent from the average check sent to early filers last year, the agency said.

The IRS also said it has seen an uptick in tax returns filed electronically, with strong growth among individuals using tax software to file from home.

The nation's tax collectors estimate that, for the first time, more than half the tax returns filed by individual and family tax returns will arrive electronically.

"It's fast, easy and you get refunds in half the time," said IRS Commissioner Mark Everson.

Tax refunds tend to be higher in the early part of the filing season as individuals expecting a check act quickly to claim their money.

This year's growing refunds can be pegged partly to tax changes that took effect last year, which increased tax benefits for low-income families, said Kathy Burlison, director of tax implementation at H&R Block.

Those changes include an increase in the amount of child tax credit that can be claimed as a refund. The old law let families claim 10 percent of their earned income over $10,500, but that has been raised to 15 percent of earned income over $10,750.

Low-income families also benefited from a small increase in the earned income tax credit, a benefit aimed at lifting low-wage workers out of poverty.

"That's certainly meaning bigger refunds," Burlison said.

Other tax law changes also could be contributing. Taxpayers who live in states without income taxes got a new deduction for state sales taxes, and parents and students get a higher  deduction for tuition and fees.

A tax refund in the spring means a taxpayer overpaid throughout the previous year. Financial planners counsel taxpayers who get big refunds to make adjustments that let them get that money sooner.

"In general, it's not a good idea to make an interest-free loan to the government or to anybody else," said Alan Straus, an attorney and certified public accountant in Manhattan. "Most people would do better off adjusting their withholdings so that they take home more every week and don't wind up with a huge refund at the end of the year."

For others, waiting to get that tax refund in the spring might be the best way to save money.

"Everybody has different levels of discipline," said Peggy Cabaniss, a certified financial planner in Orinda, Calif.

Taxpayers who get a big refund or a big bill and want to get closer to their true tax liability next year can change the amount of taxes withheld from their paychecks.

But constantly changing tax laws can make it difficult to anticipate what next year's tax return will look like, Cabaniss said.

MORE FROM TAX TACTICS

Tax Tactics Section Front

House votes to extend $31 billion in tax breaks Tax credit is coming back to bite millions Foreign account tax amnesty deadline extended IRS rules for medical deductions are sickening Preparing for the unknown: Higher taxes Under plans, tax on the richest set to rise Deficit can lead to more IRS audits, experts say Large tax bill looms for Jackson estate Small businesses get a ‘tax break,’ for now Start thinking 2009 taxes now Tax Tactics Section Front   Add Tax Tactics headlines to your news reader: