Recent Internal Revenue Service data reveals that tax refunds are substantially larger this year, even though fewer Americans are filing early returns.
According to a Detroit Free Press report, this shift presents a valuable opportunity for tax professionals to guide clients through changing tax dynamics.
Larger Refunds for Early Filers
As of Feb. 21, the average federal income tax refund rose to $3,453 -- a 7.5% increase from the previous year, according to the IRS. The IRS has distributed over $102.2 billion in refunds so far, marking a 10% increase over the same period in 2024.
See Also: A Beginner's Guide: How to File Your Own Taxes in 2025
Decline in Early Filing Numbers
Despite larger refunds, early tax filings have dropped by 4.2% compared to 2024, according to IRS data. This decrease affects both professionally-prepared returns (down 5%) and self-prepared submissions (down 3.3%).
New 1099-K Reporting Requirements
The IRS has lowered the 1099-K reporting threshold to $5,000 (previously $20,000), adding complexity for individuals with side hustles or online sales (IRS, 2025). This change has created confusion among taxpayers, especially regarding the distinction between business income and personal item sales.
Tax professionals should educate clients on accurately reporting these transactions to avoid potential penalties.
IRS Staffing Cuts and Potential Delays
The IRS recently announced the layoff of over 6,000 employees. This staffing reduction raises concerns about slower processing times.
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