Tax season is here. This is a time when people file their returns and while this process can be hectic sometimes, the promise of getting good refunds makes it all worth it. However, the amount of refund you get is not really standardized. In fact, refunds are determined entirely by the state you live in. The average tax refund according to the IRS stands at $2,700. But in some states, people get way more than that while in others less.
For example, people in the state of Texas can expect the highest refund at $3,206. Those in Maine, on the other hand, get the lowest with an average refund of $2,336. This is a spread of almost $1,000 which is quite huge. There are also a few regional patterns that are worth noting. We found out that in the northern part of the country, taxpayers are getting lower refunds on average compared to southern states. In essence, the further south you go, the higher the refunds. The only exceptions here are New York, Connecticut, and Massachusetts.
There are quite a number of reasons that could explain these variations. For example, tax policies by the federal government tend to factor certain specific behaviors. For example, people who own a home, those who give to charity, or those that have children are more likely to get favorable tax terms compared to those who don’t. There’s also the Earned Income Tax Credit that’s designed to benefit low-income households with very reasonable returns. It’s not clear if these factors are more predominant in southern states but they may have a real effect on the amount of tax refunds that people get.
The idea of getting a tax refund is often exciting but it’s not really something that makes a lot of financial sense. In essence, a tax refund is basically an interest-free loan to the government. Think of it as overpaying for something only that instead of getting refunded immediately, you will have to wait for months. Although it’s a good windfall when it comes, a lot of people would prefer to pay the exact amount owed. In such a scenario, the tax refund would be zero but you would have some extra money to spend right away.
From our analysis, the states we found to have the highest average refunds were Texas, Louisiana, New York, Connecticut, and Oklahoma. The three states had an average refund of more than $3,000. Others that came close to that figure include North Dakota with 2,983, California with $2,911, Missouri with $2,922, Alabama with $2,802, and Georgia with $2,832.
This numbers are all based on the 2018 tax season and may as well change in the future. There’s also a need to explore the cause of variability even further. Favorable tax policies may explain this but other state-specific factors that may lead to higher refunds should also be considered. The fact that a majority of states with high refunds are located in the South is also an interesting pattern that needs to be explored in future analysis.
