Tax refunds have been 10% smaller than last year’s. The average refund dropped 9.8% from 2022 to $2,910. Why? Why has this happened?
Could it be more people actively managed their tax withholdings? Or is there a more worrying explanation?
We can tell you why the refund check is smaller than you might expect. (Hint: expiration dates are involved!)
The Earned Income Tax Credit Expansion Expired
The EITC, the tax credit for people with low to moderate incomes, went away for some. Originally, the credit was meant to help pay for essentials like transportation, groceries, and utility bills. The amount depended on your income, marital status, and family size.
The federal government expanded the credit during the pandemic, but now it's back to pre-pandemic values.
The 2021 expansion helped people without children at a higher credit value, expanding it to $1,502 in 2021. Now it’s only $560. The dollar amounts for people with children went up for 2022. For example, a family with three or more children received a credit of $6,935, up from $6,728.
The age range expansion from 2021 also expired for 2022. During the pandemic, some people aged 19 to 24 and over 65 were eligible. Now, only those between 24 and 64 years old qualify.
You can still qualify for the EITC. It can be claimed for up to three years past the original tax date.
The Child Tax Credit Expansion Expired
The CTC helps offset the costs of raising children, and people with lower, moderate, and higher incomes can claim it. It helps pay for childcare, school supplies, food, and more.
Eligibility depends on your income and the number of eligible children you have. Also, the credit is partially refundable, so you can get money back instead of just a credit on your taxes.
The CTC was expanded in 2021 for the pandemic but is now back to pre-pandemic levels for 2022.
In 2021, the Child Tax Credit was larger and available to more families. It was worth up to $3,600 per qualifying child and was fully refundable. You could qualify even if you didn’t have recent earnings.
For 2022, the credit is only worth up to $2,000, and only $1,500 is refundable. Also, you must earn at least $2,500 in 2022 to be eligible for a refund.
Like the Earned Income Tax Credit, you can still claim the Child Tax Credit for up to three years past the original due date.
The Child and Dependent Care Credit Expansion Expired
The Child and Dependent Care Credit helps parents and those who need care for family members while they work. In 2021, the maximum amount you could claim was $8,000. Now the amount is back to the pre-pandemic level of $2,100.
Still, it can help pay for daycare, babysitting, summer camp, or other care for children under 13 or a disabled dependent of any age.
The Special Charitable Tax Deduction Break Expired
A special (read: temporary) tax break changed in 2021. Usually, taxpayers can only deduct donations to charity if they itemize their returns instead of taking the standard deduction. For 2021, the IRS let you take a $300 deduction even if you didn't itemize, and married couples could claim $600.
In 2022, all that went away. If you take the standard deduction, you cannot claim charitable donations.
But Wait, There’s More
The smaller refund checks aren’t just due to expired credit expansions. There are more reasons those checks are lighter this year:
- There are no more stimulus payments or recovery rebate credits on 2022 returns.
- Severance payments are taxable, so if you were part of the mass layoffs, you may receive a lower refund or be bumped into a higher tax bracket due to severance pay.
- You reduced your withholding in response to tax changes (you go, you proactive animal).
- You added a side gig that increased your tax bill. The hit is harder if you didn’t pay estimated quarterly taxes on that gig income.
- You sold investments and got taxed on capital gains.
- You no longer meet the income requirements for student loan debt deductions or paid off your student loans.
- You reduced your retirement contributions.
- You changed your filing status.
Any one of these could have reduced the size of your refund or required you to pay this year.
Changes for 2023
The IRS announced a few changes for the current year, for which you file in April 2024.
The agency increased the standard deduction by $900 to $13,850 for individual filers. Couples filing jointly had their deduction increased by $1,800 to $27,700.
You might get a refund or have more earned income if:
- You overpaid taxes.
- You can claim higher deductions.
- You raised your withholding.
- You earned more income.
- You had a change in filing status.
- You became eligible for credits you didn’t get before.
In any case, the IRS expects more people will get refunds instead of paying more at tax time, even though the average refund check is smaller.
How to Help Yourself to a Fast Refund
E-file. E-file. E-file.
Filing a paper return guarantees it will join the backlog, and you will likely wait a very long time for your refund check. Electronic filers can get their refunds within 21 days of the IRS receiving a return with no issues.
Also, you might have marginally better luck talking to a person at the IRS this season. The agency is better funded now, but less than 13% of callers reached someone who could help them — better than 11% but not by much.
The average time on hold in 2021 was 23 minutes. Now it's all the way down to 22! On average, it takes about 360 days to resolve identity theft cases and issue refunds. That’s r-e-a-l-l-y slow. Hopefully, things will get better before another pandemic occurs.
Want to Play “Get Help”?
Don’t depend on Thor to get your taxes sorted out. Top Tax Defenders can help you optimize your tax refund and get it fast. We can tell you why your refund is smaller than you expected and how to make it bigger (or smaller, so you can have the money to spend or save throughout the year).
We're happy to talk about all the annual tax changes as things get back to what passes for normal around here. Contact us today.