Americans could get a tax refund shock this year

Americans could get a tax refund shock this year

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  • January 14, 2023
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Millions of US taxpayers could be in for a shock when they see their 2023 tax refunds due to the expiration of many pandemic benefits lawmakers designed to help Americans weather the crisis.

That means families may get smaller refunds when filing their taxes for the 2022 tax year, said Mark Steber, Jackson Hewitt’s chief tax information officer. The average tax refund in 2022 (for tax year 2021) was nearly $3,200, according to IRS data, a 14% increase from the previous year.

The IRS said Thursday it will begin accepting tax returns on Jan. 23, while the filing deadline is April 18, giving taxpayers three additional days over the typical April 15 filing deadline. That’s because April 15 falls on a Saturday, while Monday, April 17 is Emancipation Day in the District of Columbia.

The benefits that boosted refunds during the pandemic have largely lapsed, from federal stimulus checks to the expanded Child Tax Credit (CTC), Steber noted. Even the IRS is warning taxpayers that checks could be stingier. The tax authority warned in a November press release: “Refunds could be lower in 2023.”

Many of the tax benefits still exist, but under current tax laws they have returned to their smaller pre-pandemic levels, as in the case of the CTC, which is credited with lifting millions of children out of poverty. The CTC returns to its previous level of $2,000 per child compared to a pandemic credit of $3,600 per child.

2021 “was a pretty remarkable year with the introduction of all these new tax breaks,” Steber noted. “But jump ahead [2022]and many of the increases have expired, hence the term “reimbursement shock” or “reimbursement surprise.”

The typical tax refund this year could be about $2,700, or about what taxpayers received in 2021 (for their 2020 taxes), Steber said. Of course, every taxpayer’s situation is different, as refunds depend on a number of factors ranging from a person’s tax bracket to whether a taxpayer has children.

A rule of thumb that Steber recommends: Don’t look at your last year’s tax return to determine what you’ll get for your 2023 refund.

IRS Announces Adjustments in Response to Inflation 03:17

“You probably won’t have as pleasant an experience as last year,” he said.

The IRS also warns taxpayers not to count on getting their refunds “by a specific date, especially if they’re making major purchases or paying bills.”

It added: “Some returns may require additional verification and may take longer.”

Here are some of the tax changes that could affect your refund this year.

No stimulus check

The government issued no stimulus checks in 2022, with the third and final payment approved by the American Rescue Plan Act in spring 2021. Because those checks were paid in 2021, they were included in tax returns filed in early 2022 and impacted tax refunds received earlier this year.

Some taxpayers relied on their 2021 tax returns to claim more stimulus money, which helped them get bigger refunds. For example, children born in 2021 were generally not included in the third round of stimulus checks because the IRS relied on 2020 tax returns to determine eligibility — and thus children born in 2021 were initially passed over by the IRS. However, the parents were able to claim the third stimulus check for these children in the tax return last year.

A smaller tax credit for children

The child tax credit increased in 2021, with parents of children under 6 receiving $3,600 and parents of children ages 6 to 17 receiving $3,000.

But in 2022, that tax credit returned to pre-pandemic levels of $2,000 per child, regardless of age. While that’s certainly a help, this slimmer tax break could impact parent refunds.

Some lawmakers and child advocates are pushing to reintroduce the higher CTC amounts, with Rep. Adam Schiff, a Democrat from California, in December urging congressional leaders to extend the expanded CTC. But with Congress now divided and Republicans in control of the House of Representatives, the benefit is unlikely to return to its expanded form.

Tax credit for children and dependents

The Child and Dependent Care Credit, which helps parents pay for child care, has been boosted under the American Rescue Plan, which increased the credit to up to $8,000 per family.

But even that tax credit has returned to pre-pandemic levels. Under current law, parents can claim up to 35% of up to $6,000 in qualifying childcare expenses for two or more children against their 2022 taxes.

That means the maximum balance for the current year is $2,100. (The amount is halved for parents of one child.)

Earned Income Tax Credit

Another tax credit that’s less generous for taxpayers in 2022 is the Earned Income Tax Credit (EITC), which is aimed at low- and middle-income workers.

During the pandemic, the EITC was increased for a group of workers who don’t typically benefit much from it: adults without children. In 2021, low-income workers with no children were eligible for a loan worth up to $1,500.

This year, the tax credit for this group will reset to a lower amount – $560 in 2022.

Low-income parents who qualify for the EITC will actually receive slightly higher amounts in 2022 as this number is adjusted annually for inflation. For example, eligible parents with two children may receive an EITC of $6,164 for their taxes in 2022, compared to $5,980 in 2021.

No additional deduction for charity

The Coronavirus Aid, Relief and Economic Security Act, or CARES Act, included a provision that allowed taxpayers to deduct an additional $300 for single taxpayers or $600 for married couples from their 2020 and 2021 taxes.

This provision allowed individuals who rely on the standard deduction, which represents the majority of taxpayers, to make an additional deduction for charitable donations. But that excess charitable deduction wasn’t extended in 2022, meaning taxpayers who don’t provide details won’t get an additional deduction for their charitable donations this year.

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