As tax filing season begins, you should be aware that the IRS has warned that this year’s refund may be lower.
WASHINGTON. Tax season officially begins on Monday, when the IRS begins accepting and processing tax returns. More than 168 million individual tax returns are expected, according to the agency.
But as a number of key tax credits return to pre-pandemic amounts, the IRS says taxpayers may get a smaller refund this year, especially compared to last year.
Here are some of the reasons why:
Changes in the child tax credit for 2023
One of the biggest changes expected is the loss of the Extended Child Tax Credit, which was increased from $2,000 to $3,600 per dependent in 2021.
Most families received half of their 2021 Extended Credit on a monthly basis, with the other half received upon tax filing.
But the pandemic-era expansion ended in 2022, and full payouts will once again only go to families who have earned enough income to pay taxes, a policy choice that will limit benefits to the poorest households.
“This will affect families in different ways, depending on household composition and income,” said Joanna Ayn, associate director of policy for Prosperity Now, a national nonprofit focused on opportunities for low-income families and racial economic justice. “I think a lot of families will be disappointed this year when they don’t have access to this really important tax credit.”
The US Census Bureau estimates that in 2021, the Child Tax Credit will lift 2.9 million children out of poverty. The agency found that expanding the program specifically helped keep 2.1 million of those 2.9 million children above the poverty line.
“Families were able to pay monthly expenses, their financial stress was reduced. They were able to pay for utilities, groceries,” Ain said. “It has become easier for them to get to work. These payments are in no way a substitute for work. Work.
Other Tax Credit Changes
The Earned Income Tax Credit and the Child and Dependent Care Credit will also return to 2019 standards.
The EITC, which is available to low- and middle-income families and people without children, will now be $500 instead of the $1,500 that will be paid in 2021 to those who qualify. The Child and Dependent Care loan is back to a $2,100 high, a sharp departure from the $8,000 high set in 2021.
These changes in tax credits and benefit entitlements included in the American Rescue Plan were largely in response to COVID, explained Braden Williams, an assistant professor of accounting at the University of Texas at Austin. Extended tax breaks and stimulus checks have been ways to boost economic activity since the pandemic.
“It’s a law with what we call an expiration clause,” Williams said. “After a while, it gradually disappears or just disappears.”
The IRS has pointed out that another reason you may receive a smaller refund this year is because there were no stimulus payments in 2022.
Can I accept charitable donations without a transfer in 2022?
Tax credits for charitable donations have also changed in 2022 tax returns.
The rules are back in place until 2021 and taxpayers can only deduct charitable contributions if they list their deductions on Schedule A and can only claim deductions up to 60% of their gross adjusted income.
Tips for the 2023 tax season
Collect all information before submitting
The IRS is urging taxpayers to collect and organize their 2022 tax documents, including Social Security numbers and Individual Taxpayer Identification Numbers.
Along with urging taxpayers to have all the correct information before filing a return, the IRS urges Americans to check for tax credits such as the earned income tax credit.
By having an accurate tax return, taxpayers can avoid future IRS delays or notices.
Free IRS file available from January 13th
The agency’s IRS Free File program opened on Friday, January 13, and allows taxpayers who earned less than $73,000 in 2022 to file their taxes electronically for free using “proprietary software provided by commercial tax companies.”
Free File Forms are also available for all income levels and provide free electronic forms that people can fill out and submit for free.
When can I expect a tax refund?
The IRS expects that most direct deposit taxpayers who have had no issues will receive a refund within 21 days of filing their tax returns electronically.
Taxpayers can check the agency “Where is my refund?” page on IRS.gov for the status of their reimbursement.
If you are expecting a refund and have claimed an earned income tax credit or an additional child tax credit, the IRS will not issue those refunds until approximately February 28 or a few days earlier. The agency explains on their website that, by law, they cannot issue EITC or ACTC refunds until mid-February. Most EITC or ACTC return statuses on the IRS website will be available from February 18th.