Tax Refunds Are Flowing, but Early Filings Lag Behind

The 2025 tax season is off to a slow start, with the Internal Revenue Service (IRS) reporting a 7.7% decline in tax returns received compared to last year. Additionally, the IRS has processed 7.6% fewer returns as of February 7. Despite the sluggish start, tax refunds continue to be issued steadily.

Why Are Fewer People Filing Early?

Several factors may be contributing to the decline in early tax filings:

• Confusion from Misleading Online Tax Advice – Social media has been rife with misinformation, leading some taxpayers to delay filing.
• An Influx of 1099-K Forms – More gig workers and online sellers are receiving these forms, making tax filing more complex.
• Political Uncertainty – Speculation about tax law changes under the new administration may be causing hesitation.
• Disaster-Related Extensions – Many taxpayers in disaster-affected states have extended deadlines, reducing the urgency to file.
• Calendar Adjustments – The tax season started two days earlier this year, but many filers were still waiting for necessary paperwork.

Average Tax Refunds Are Up

So far, taxpayers who have filed are seeing larger refunds. According to the IRS, the average federal income tax refund as of February 7 is $2,065, an 18.6% increase from the same period last year.

Those who file early often aim to receive their refunds as soon as possible. For example:

• E-filers requesting direct deposit could see their refunds within 11 days.
• Paper check recipients may wait up to three weeks.
• Filers claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) should expect refunds by March 3, though some may receive them earlier.

Misinformation and Political Uncertainty

Some taxpayers may be delaying their returns due to speculation about tax policy changes under the Trump administration. However, experts warn against basing decisions on rumors:

• Some falsely believe Trump’s executive orders could impact 2024 tax returns, which is not the case.
• Misinformation on social media has led some to think the IRS is being eliminated or that income taxes will be abolished—both inaccurate claims.
• Mark Steber, Chief Tax Officer at Jackson Hewitt, emphasizes that retroactive tax law changes are highly unlikely and would require significant congressional action.

The Growing Impact of 1099-K Forms

One major shift affecting taxpayers is the increased issuance of 1099-K forms, which track payments received from gig work, selling goods online, or side hustles.

Key Changes to 1099-K Reporting:

• Previously, a 1099-K was only issued if a taxpayer received over $20,000 and had 200+ transactions.
• In 2025, the threshold has dropped to $5,000, significantly increasing the number of people receiving these forms.
• This change affects those selling items online, including resale of event tickets (e.g., Taylor Swift concert tickets on StubHub).
• Taxpayers unfamiliar with this reporting may be delaying their returns to understand their obligations.

IRS Challenges and Processing Delays

The IRS itself is facing disruptions that could impact tax season:

• A federal hiring freeze is limiting resources.
• Operational reviews by Elon Musk’s cost-cutting group have raised concerns.
• Rumors about the IRS Direct File program being shut down (it remains available in 25 states but not Michigan).

Despite these challenges, the IRS has still received 23.58 million tax returns and processed 23.5 million as of early February.

Disaster-Related Extensions

Millions of taxpayers in disaster-affected areas do not need to file by April 15. Extended deadlines include:

• May 1: Alabama, Florida, Georgia, North Carolina, South Carolina, and parts of Alaska, New Mexico, Tennessee, Virginia, and West Virginia.
• October 15: Southern California residents impacted by wildfires.

While some taxpayers may file early to get their refunds, others in these regions may take extra time due to personal and financial hardships.

Early Filers Still Moving Forward

Despite the overall slowdown, many tax preparation firms are seeing strong demand for early filings.

Matt Hetherwick, Chief Program Officer at Accounting Aid Society in Detroit, noted that:

• Appointments for tax preparation have increased compared to last year.
• Refund processing is on track, with few client complaints about delays.

Bottom Line

While tax season started slowly, refunds are still being issued, and many taxpayers are moving ahead with their filings. Those considering delaying should ensure they have all necessary paperwork and avoid being misled by misinformation. Filing sooner rather than later remains the best way to receive a refund promptly and avoid the last-minute rush before April 15.