Tax Season Starts Slow and Will Last Longer

Tax season is off to a slow start this year due to pandemic-related impacts and delays the IRS instituted related to when filings were accepted and when refunds would start to be issued. As a result, the current tax return season is well behind prior years, which in turn impacts the year-over-year comparisons we have been accustomed to making.

The volume of tax returns processed is down 20% year over year, according to the latest IRS data available through March 12, 2021. The number of refunds issued is down 28%, and total refunds in dollars are down 28% as well, with the average refund down 0.2%.

Assessing where we are this year against where we were this time last year, it is clear that we are just starting to see the effects of tax refunds issued into the economy and the auto market. By the same week last year, about half of all tax returns had been processed and about half of tax refunds had been issued. This year, only about a third of potential refunds have been issued so far.

Tax Max, a provider of consumer tax filing services to dealerships across the country, reports that the average refund they have processed so far is actually higher this year than last year. While they are seeing a slower year thus far, their volumes have picked up in March.

We are still in the early innings of the 2021 tax filing and refund season. With the IRS pushing back the official Tax Day to Monday, May 17, and the implementation of the new American Rescue Plan Act, we anticipate tax refund season this year to be much longer than previous years. Indeed, some potential used-car buyers are likely to get two refunds instead of one, thanks to the retroactive change in shielding some unemployment compensation from tax liability.