Tax refunds up 10% due to stimulus

NEW YORK (CNNMoney.com) -- White House officials said Monday that tax credits launched under last year's economic recovery bill have boosted the average refund by nearly 10% from the previous year.

The average tax refund for 2009 has reached $3,036, up $266 from a year ago, according to early data from the Internal Revenue Service.

Administration officials said the increase is largely due to tax benefits available under the $787 billion American Recovery and Reinvestment Act. The extra cash is a boon for the middle class and provides an important stimulus for the economy, officials said.

"The Recovery Act is a major factor behind these larger, record refunds," said IRS Commissioner Doug Shulman. "About half of all Americans haven't filed their taxes yet, so we urge them to look carefully at these Recovery provisions."

Under the Recovery Act, which was implemented last year to combat the economic crisis, taxpayers can take advantage of over a dozen tax benefits.

Among the benefits are the making work pay credit, worth up to $800 for married couples filing jointly, the $8,000 first-time home buyer credit, and sales tax deductions on new car purchases.

In addition, the act includes credits for homeowners that make their homes more energy efficient. It also expanded eligibility for a $2,500 tax credit on college expenses and made the first $2,400 of unemployment benefits tax free.

Speaking at a news conference in Washington, Vice President Joe Biden said bigger refunds will help working families recover from one of the worst recessions on record and urged Americans to take full advantage of the credits.

"These Recovery Act tax credits not only provide some needed relief for working Americans, but also help them invest in their families' futures," Biden said.

Treasury Secretary Tim Geithner added that the nearly $300 billion in tax benefits will help the economy recover by encouraging Americans to spend, which will help business and ultimately stimulates job growth.

"The more that individuals and families take advantage of these benefits, the more money is pushed back into the economy, helping all Americans as we grow our way out of this crisis," Geithner said.

However, some critics argue that the bigger tax refunds could be due to factors other than the Recovery Act credits, including a larger number of Americans withholding more last year due to unemployment or other economic hardships.

Individuals who work into the year and get laid off typically over-withheld while they are working, said J.D. Foster, a senior fellow specializing in fiscal policy at the Heritage Foundation, a conservative research group. That over-withholding can lead to larger refunds.

"There are many reasons for refunds to be up and no reason at this point to believe the tax credits from the Recovery Act were a particularly important explanation," Foster said.