The IRS Says Tax Refunds are Up 10%

Broadcast Retirement Network’s Jeffrey Snyder discusses what you can do with your tax refund with U.S. Bank’s Derik Farrar.

Jeffrey Snyder, Broadcast Retirement Network

Well, joining me now is Derek Farr of U.S. Bank. Derek, always great to see you. Thanks for joining us again this morning.

Derik Farrar, US Bank

Yeah, great to be back.

Jeffrey Snyder, Broadcast Retirement Network

Well, last time we chatted, we were kind of at the beginning stages of U.S. tax refunds. How do things look now that we’re in the throes of it, that the IRS is doing their due diligence, they’re doing their checking? How are tax refunds going?

Derik Farrar, US Bank

Yeah, the IRS, they’ve been busy, particularly the last couple weeks. So we’ve now seen all metrics flip positive year over year. So the Bureau has processed more refunds.

The refunds that have been issued are higher. And then the total amount that’s gone back to taxpayers is higher as well, given those two dynamics. So yeah, so we’re seeing the average refund so far.

And this is based on what we see with our U.S. Bank client data is about 12% higher than it was this time last year.

Jeffrey Snyder, Broadcast Retirement Network

I mean, that’s amazing. It’s always nice to get money back. It’d be nice not to pay, but it’s always good to get money back.

In terms of what clients are doing with these refunds, do you have a sense, are they putting it away? Are they putting it towards debt or all the above or something else?

Derik Farrar, US Bank

Yeah, we really see all the above. So for sure, you see people who are just choosing to save all or a portion of it. Kind of hard to tease out on the investment side, just given all the external volatility recently with geopolitical events.

But as ever, there are a variety of ways people can put a refund to really good use, whether it’s paying off some high rate debt, whether it’s starting or augmenting the savings plan. And I think for a lot of people, it makes sense to do some combination of both of those things.

Jeffrey Snyder, Broadcast Retirement Network

Are you getting a sense of, I mean, if I saw 12% more in my refund, I’d be a little bit more bullish, even though there are some affordability challenges going on. We’ve got, you mentioned the geopolitical events with the spike in oil, translates to higher gasoline costs. But are people feeling better?

Is the sentiment better? I know you don’t necessarily look at that, but anecdotally.

Derik Farrar, US Bank

Yeah, I would say, I think the K-shaped economy is real, right? We’ve seen increasing use of buy now, pay later every year for the last couple of years. This December and January were quite a bit higher than the year before.

So it’s possible that some people are just taking that, the refund and then paying off purchases that they would have more recently made. And obviously you’ve got other people who are on the upper slope of the K who are just using it to drive more spend and also investment as well. So as with, I think most things in the current economy, there isn’t one uniform answer that’s sort of applicable across 330 million or 275 whatever million adult Americans.

Jeffrey Snyder, Broadcast Retirement Network

Yeah, well, certainly we’re all individuals. We all do different things. One area I wanted to ask you about is the payment of estimated taxes.

I think this is an area that a lot of Americans maybe miss that you have to or should pay your estimated taxes. Are people, because if not, I think there’s a penalty to that. Are people taking some of this refund and putting it towards those taxes?

Derik Farrar, US Bank

We haven’t necessarily seen that yet. That’s a phenomenon we usually see show up a little bit later in the year, particularly for someone who pays that penalty for the first time and then realizes they’ve got to be a little more proactive about the way they’re managing their tax liability. But yeah, I mean, for sure every year, more recently we’ve seen an uptick in people who are making estimated tax payments.

And as we’ve been in the kind of higher for longer interest rate environment, obviously more people just have 1099 INTs to pay. So we’ll see the impact of that a little bit later in the cycle as the people who have to pay start to come in and then offset. Now, typically early in the cycle, the people who are filing earlier are the ones who expect to get it back.

And then obviously those who are likely to pay or have a substantial bill always cluster right around the 15th of April.

Jeffrey Snyder, Broadcast Retirement Network

Yeah, well, I mean, I wouldn’t wanna pay. I would wanna pay to the very last minute if I had to pay something. Let me ask you about 2027.

I know I don’t wanna put you in the time machine. I’m not asking to prognosticate, but now’s the time to look at your W-4 and what your employer, what deductions you have, how many dependents, did you have a child? Is it now the right time to kind of set up or maybe it was in January, candidly, that you really need to look at these things to make sure you set up your 2026 taxes correctly?

Derik Farrar, US Bank

Yeah, absolutely. Well, you’re right. I mean, the time would have definitely been in January given that, hopefully we’re all fortunate enough, those of us who wanna be employed for 12 months are, but if the time to look at it was in January, then obviously early March is definitely when you should go in and have a look.

And then with the OBBBA last year coming into effect, last year, kind of mid-year, that’s one of the things that’s triggered the higher refunds this year is that most people didn’t go in and make any adjustments. So definitely worthwhile time spent to go in and just make sure that anything that is controllable on your end about how much you pay and when is something that can be actioned with most employers virtually, kind of paycheck by paycheck.

Jeffrey Snyder, Broadcast Retirement Network

Yeah, really important. It’s part of that. I guess you’re right.

I should have asked that question to you back in January, but again, it didn’t come to me until March. Last question for you, Derek, in terms of gig workers, you kind of referenced it with 1099 versus W-2. With the advent of AI, I would imagine that more of us, especially as older folks, are doing a lot of different things.

It’s kind of a patchwork quilt, if you will, of jobs. So we’re not just doing, maybe we’re working as a W-2, but maybe we’ve got a side gig going on. Maybe we’re working out of our garage.

Maybe we’re baking cookies. I don’t know, right? I mean, that’s kind of the sense that you might get.

Do you get that sense from looking at some of the employment data that maybe people are doing a lot of different things at once?

Derik Farrar, US Bank

Yeah, you’re absolutely right about that. And as we get away from more individuals just having W-2 type income and having multiple sources, the IRS is going to want to make sure they get their share of all of it. So a little bit more of the burden definitely shifts back to the individual because the IRS isn’t going to know how all that unfolded for you until the end of the year when you file.

So yeah, I think that’s a great thing, a great call out for people to be aware of.

Jeffrey Snyder, Broadcast Retirement Network

Yeah, well, and I don’t want to tip off the IRS. I certainly don’t want people to get audits, but probably going back to our W-4 conversation and all these things, estimated taxes, you really want to get these things buttoned up. Derek, we’re going to have to leave it there.

Always great to see you. Thanks for joining us. And we look forward to having you back on the program again very soon, sir.

Derik Farrar, US Bank

Yeah, I really appreciate it, Jeff. Have a great day. Thanks for having me on.

#IRS #Tax #Refunds