Higher tax refunds might not be enough for America's struggling middle class

Now that tax season is in the final stretch, many people are anxiously awaiting their hard-earned refunds.

At $3,145, average tax refunds are up by nearly $200 this year compared to last year’s $2,972. Unfortunately, that won’t go too far for America’s middle class, many of whom are still struggling to afford the basics.

This year, tax refunds of any size are more of a necessity than a luxury. According to a LendingTree study, 40% of filers are depending on refunds in 2024, versus 36% who were in a similarly desperate situation a year ago.

LendingTree senior economist Jacob Channel blames it on the rising cost of goods and services, which continue to inch higher versus year-ago levels.

“The most simple explanation is inflation,” he said.

Indeed, many middle-class families are still reeling from economic headwinds such as the high cost of housing, pesky inflation, and elevated interest rates, all of which are taking the wind out of the sails of filers.

Middle-class mayhem

America’s middle class has been swinging from one financial crisis to the next, including those who are living in dual-income households.

A recent report spotlights a couple residing in the Los Angeles area who earn a combined gross annual income of $170,000, seemingly placing them comfortably in the upper middle-class category, according to Pew Research benchmarks.

But they’re not as comfortable as they’d like to be, owing to soaring real estate costs that make it nearly impossible to afford homeownership among other things, especially in this metro area.

True enough, they chose a tough metro. According to Creditnews Research, the middle class can’t even afford bottom-tier homes in LA.

But with housing costs across the nation having skyrocketed since Covid, homeownership still feels out of reach for many households, not just this couple.

One middle-class mom from Pennsylvania in a TikTok video that’s gone viral documents the struggle her family faces each day just to make ends meet. An extra $200 in a tax refund check wouldn’t go too far for this woman, who’s a registered nurse, and her husband, who works full time.

"We just got paid this past Friday, right? We paid the mortgage, bought some groceries [and] put some gas in the car. Guys, it is Tuesday, and we have like $200 or $300 to last us until next Friday,” she said.

Tax day approaches

There’s little leeway in the budgets of debt-laden Americans who are entitled to a bump in their tax refunds this year.

In Q4 2023, consumers racked up an additional $212 billion in household debt for a combined balance of a whopping $17.5 trillion. Worse, delinquency rates rose on credit cards and auto loans in the period, according to the New York Fed.

Not surprisingly, the LendingTree poll reveals 44% of taxpayers are planning to direct any surplus cash they receive from the IRS this year toward paying down debt.

Another 43% will put the money back into their savings, while the smallest group (15%) would use the funds toward buying a new house or vehicle.

But with refund checks barely expected to cross $1,000 for nearly half (46%) of filers, those checks won’t go nearly as far as the middle class needs them to.

A silver lining could emerge for taxpayers who failed to file during Covid.

The IRS claims nearly 1 million Americans are still owed tax refunds from 2020, pointing to $1 billion in unclaimed checks. But the clock is ticking on that money, as the deadline to claim payouts, the average size of which is $932, is May 17.