Expecting a tax refund? It could be smaller than last year. And with inflation still high, that money won’t go as far as it did a year ago.

The 90 million taxpayers who have filed as of March 31 got refunds that were an average of nearly 10% less than last year, in part due to pandemic relief programs expiring. The filing deadline for most taxpayers is Tuesday.

The average refund is $2,910, down from $3,226, a difference of more than $300, according to the most recent IRS data.

For many households, especially working families, the tax refund is the biggest one-time financial windfall of the year, said Kathy Pickering, chief tax officer of H&R Block.

“We know that working families in general are the most cash-strapped,” she said, adding that the expanded earned income tax and child tax credits during the COVID pandemic provided a lot of benefits for families with children.

The child tax credit, for example, is reverting to $2,000 per child, while the pandemic credit was as high as $3,600 per child. The child and dependent care credit, a tax break available to parents and those who care for family members while they work, had been expanded to a maximum of $8,000 in 2021 and is now a maximum of $2,100.

“As those provisions expired, that’s had a big impact,” Pickering said.

Gig work

Pickering said that more Americans took on side hustles, gig and freelance work during and since the pandemic, and so they may be experiencing the self-employment tax and the consequences of a lack of withholding. A traditional employer who provides a W2 would withhold taxes from each paycheck, meaning less of a potential shock at the end of the tax year.

Ted Rossman, an analyst with Bankrate.com, said those who receive refunds tend to use the money “very practically,” often to pay off debt and boost savings.

“What I do think is definitely significant is the fact that other costs have gone up,” Rossman said. “It’s bad enough that this is taking 10% off your tax refund, but on top of that, your groceries might be up, and rent, and gas prices. This is money that a lot of people really count on every year.”

“Even a difference of $300 on the tax refund, that does pale in comparison to the stimulus people received during the pandemic,” he said. “Psychologically, economically speaking, it probably feels like, ‘Just one more thing.’ So maybe it weighs on confidence more than actual spending.”

Some upside

According to Rossman, there’s a possibility that this year’s lower tax refunds could weaken consumer spending and, as result, help slow inflation.

“It’s bad news for households because people want higher refunds, obviously, but I think perhaps quietly the Fed might cheer,” he said.

To combat inflation, the Federal Reserve has been raising interest rates to increase the cost of borrowing money, with the hope of slowing the economy.

Unfortunately, for those households that have spent through their savings, who are now relying on credit cards to get by month to month, those higher interest rates have also led to average credit card interest rates of over 20%.

“That becomes a tough cycle to break,” Rossman said.