The average American is getting hundreds of dollars more back on their tax refund this year, according to the IRS.
The agency raised the standard deduction and widened tax brackets to account for inflation, boosting refunds even though fewer people have filed so far compared to last year.
"There's reason to believe that we'll continue to see higher tax refunds going forward," said Matt Schulz of LendingTree.
According to IRS data, the agency has returned $145 billion since the start of the current tax season, more than a 7% increase from this time in 2024.
The average individual refund is also larger: In the sixth week of tax season last year, it was $3,145. In the sixth week this year, refunds have averaged $3,324.
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For direct deposits, people are also getting more than 5% more on their returns this year compared to last.
"Even though we really like these tax refunds and it can feel good to get a windfall and put them toward high-interest debt, in theory, you don't want to get a giant refund because it essentially means you have given the government an interest-free loan," said Schulz.
The biggest reason for the increase is the standard deduction which the government raised by $750 for single filers, $1,500 for joint filers, and $1,100 for heads of household. The bump was to account for higher prices due to inflation. Tax brackets also changed, so some folks got to keep more of their money even if their income didn't change.
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"That is not free money," said consumer spending expert Andrea Wororch. "That is money you earned throughout the year and so you shouldn't just go spend it on a frivolous purchase."
Woroch says even though it might feel like a big payday, the best thing you can do is put that money toward savings and high-interest debt.
"We saw balances high all-time highs at the end of Q4," said Woroch. "So, if you're paying high interest — 20% or more on that credit card balance — using that tax refund can help you pay off a bunch of debt quickly."
