The Internal Revenue Service started accepting tax returns on Monday, officially kicking off the earnings bonanza that flows to companies where filers spend their refunds. This year, lower-income consumers could increase their spending the most.
Between now and April 15, the IRS will receive tens of millions of tax returns from filers who will find out how much they overpaid their taxes last year and whether they might receive a refund. By April 21 last year, the IRS had received about 137 million returns and refunded almost $237 billion. While some of that will go into savings, many consumers will no doubt spend the windfall.
Overall, tax filers might receive modestly higher refunds this year, according to a note on Tuesday by Wolfe Research strategist Chris Senyek. On the one hand, the IRS raised tax-bracket thresholds and boosted the standard deduction for 2023 by nearly 7% to account for inflation. On the other, Senyek said, some investors might face more capital-gains taxes because the market was up sharply last year after losing more than 18% in 2022.
Lower-income consumers are less likely to have significant capital gains, so as a group, they are likely to get the biggest benefit from refund season this year. In addition, a bipartisan tax bill that could be voted on by Congress in the coming days includes a provision that would expand the refundability of the Child Tax Credit, potentially increasing some low-income consumers’ refunds by hundreds of dollars.
Stocks that are most sensitive to spending by less wealthy consumers include
Walmart,
Advance Auto Parts,
Cracker Barrel Old Country Store,
and
Dollar General,
Senyek wrote.
If tax refunds do give a boost to such spending, that would be a welcome change from what some of those companies experienced in 2023.
As of April 21, 2023, the average tax refund for the 2022 filing year was $2,753, down 8.6% from the same time the year prior. Executives from Walmart,
Dollar Tree,
Advance Auto Parts, and many other companies at various points through the year cited smaller refunds, along with reductions in food stamp benefits, as hurting their bottom lines in the first quarter of 2023.
“It really showed up in mid-March where the SNAP reductions and the tax refund lowering…really put pressure on our consumer,” said Jeff Owen, who was then CEO of Dollar General, at a
Goldman Sachs
retailing conference in September.
Investors in Dollar General and other such stocks have reason to hope for a reversal this year.
Write to Joe Light at [email protected]
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