Tax refunds and breaks in 2023

What happened: The average tax refund is up $350 year-over-year, reaching $3,521 as of March 27, driven by higher refunds and new tax breaks. Meanwhile, $1.2 billion in 2022 tax refunds are set to expire on April 16 if unclaimed. Treasury Secretary Janet Yellen recently revealed that one in four Americans are benefiting from a significant tax break, with millions already receiving larger refunds.

Market impact: This narrative impacts tax preparation services like H&R Block and TurboTax, as well as financial institutions that offer tax-advantaged products. The increased refunds could boost consumer spending, benefiting retailers and consumer discretionary stocks. Conversely, higher refunds may indicate lower tax revenues, potentially impacting government bond yields.

What to watch next: On April 18, the IRS will release its weekly tax filing statistics, providing an update on refund trends. Additionally, the April 16 deadline for claiming 2022 refunds will offer insight into how many Americans act on the IRS's warning. Lastly, upcoming earnings from tax preparation companies like H&R Block (HRB) and Intuit (INTU, owner of TurboTax) will provide further color on tax season activity.