Although 3 out of 4 Americans will get a tax refund from the IRS this year, not all refunds are created equal. Residents of some states tend to receive larger checks than others, according to a recent analysis of IRS data from financial site Lending Tree.
The largest tax refunds are in Wyoming, where residents received an average of $5,027, based on the most recent data available, which is from 2019. The second largest tax refund is went to residents of Connecticut, with an average check of $4,461, while New York residents received an average of $4,444, putting the Empire State in third place, according to the analysis.
By comparison, the average US tax refund in 2019 was $3,651. (Through early April of this year, the average tax refund for the current tax season is about $3,200, the IRS said earlier this month.)
The range of tax refunds stems from income differences, according to Matt Schulz, chief credit analyst at LendingTree. Residents of states that tend to have higher average incomes are likely to get larger refunds since the size generally depends on how much you paid in taxes throughout the year to the IRS. People with higher incomes have withheld more of their taxes and therefore may see larger refund checks when tax time arrives.
“One of the things that you notice when you look at this report is that you tend to see high-income states and low-income states kind of stuck together in a lot of ways,” Schulz said.
Wyoming, however, has a lower median household income than Connecticut or New York, according to the Federal Reserve Bank of St. Louis. The median household income in Wyoming is about $65,000, compared to about $79,000 for Connecticut residents. But Wyoming also has one ofwith a concentration of extremely wealthy residents clustered in towns like Jackson Hole.
On the other hand, residents of low-income states tend to see lower average repayments. With less money to send to the IRS with each paycheck, they tend to receive less money at tax time. Residents of Maine receive the lowest reimbursements, at $2,752, while other states with lower than average reimbursements include Oregon, Vermont and Iowa.
Where people need most
Although most Americans receive a refund, a significant portion of taxpayers end up owing the IRS – about 21% of taxpayers end up sending a payment to the tax agency. The average amount owed is $5,893, Lending Tree said.
As with reimbursements, the largest payments by the state are income-related. Massachusetts residents had the largest payouts, according to Lending Tree data, with an average tax bill of $7,605. Wyoming residents had the second highest tax bill, at $7,541. Residents of Washington state ranked third, ahead of an average of $7,145.
Tax refunds may seem like a godsend, but it really means you missed the opportunity to use that money in the previous year, Schulz noted.
“With anything that has money, there’s the mathematical side, and then there’s the psychological side,” he noted. “Mathematically, it’s certainly better not to get a big refund, because that just means you’re giving the government an interest-free loan when you could be putting that money to work yourself.”
But from a psychological point of view, some people may find it useful to get a check at tax time because they can use it to pay off debt or create an emergency savings fund – things they may not have the discipline to tackle during the year.
“Some of the oldest money advice is the best, which is ‘know thyself,'” Schulz noted.