Here’s what HIVE AI had to say about “Why is my refund smaller than expected this year?”:
There are several common reasons why your tax refund might be smaller than you expected this year. Understanding these factors can help you make sense of the difference between your anticipated and actual refund amount.
Changes in Tax Credits and Deductions
One of the most significant reasons for smaller refunds in recent years is the expiration of pandemic-era tax benefits:
Some tax credits have returned to their pre-pandemic levels, which means taxpayers will likely receive a significantly smaller refund compared with previous tax years. These changes include amounts for the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC), and the Child and Dependent Care Credit reverting to pre-COVID levels. IRS Newsroom – IR-2023-32 – Tax Time Guide: Things to consider when filing a 2022 tax return
For example: For the EITC, eligible taxpayers with no children who received roughly $1,500 in 2021 now get $560 for the 2022 tax year. IRS Newsroom – IR-2023-32 – Tax Time Guide: Things to consider when filing a 2022 tax return Those who got $3,600 per dependent in 2021 for the CTC will, if eligible, get $2,000 per dependent for the 2022 tax year. IRS Newsroom – IR-2023-32 – Tax Time Guide: Things to consider when filing a 2022 tax return
Refunds may be smaller because taxpayers will not receive additional stimulus payments with their tax refunds, as there were no Economic Impact Payments for 2022. IRS Newsroom – IR-2022-203
Advance Payments of Credits
If you received advance payments of certain tax credits, this could reduce your refund:
There generally are two ways that the receipt of advance Child Tax Credit payments could cause you to owe money to the IRS or receive a smaller tax refund than you had expected. First, if the total amount of advance Child Tax Credit payments that you received during the year exceeds the amount of the Child Tax Credit that you may properly claim on your tax return, you may need to repay that excess amount – unless you qualify for repayment protection. IRS – Tax year 2021/filing season 2022 Child Tax Credit frequently asked questions — Topic C: Reconciling advance Child Tax Credit payments and claiming the 2021 Child Tax Credit on your 2021 tax return
Second, for certain taxpayers, the total amount of advance Child Tax Credit payments that they received was greater than the amount of increase in their Child Tax Credit, as compared to the amount of Child Tax Credit they claimed for the previous tax year. Therefore, these taxpayers will be able to claim a smaller amount of Child Tax Credit on their tax return, as compared to their previous tax return – which could reduce the taxpayer’s refund or cause the taxpayer to owe money to the IRS. IRS – Tax year 2021/filing season 2022 Child Tax Credit frequently asked questions — Topic C: Reconciling advance Child Tax Credit payments and claiming the 2021 Child Tax Credit on your 2021 tax return
Changes in Your Tax Situation
Changes in your personal or financial situation can affect your refund:
There are different factors that could cause a tax refund to be smaller or larger than expected. Sometimes it is due to Child Tax Credit amounts, delinquent taxes or past due child support. The IRS will mail taxpayers a letter that explains if these adjustments have been made. IRS Newsroom – IR-2023-76
Withholding and Estimated Tax Payment Changes
If you changed your withholding or made different estimated tax payments, this could affect your refund:
If you received a smaller refund than expected or have an unanticipated tax bill, use the IRS Tax Withholding Estimator to help decide if you need to adjust your tax withholding or make estimated or additional tax payments. IRS – Publication 5348: Get Ready to File
Errors in Your Return or Processing
Sometimes, errors in your tax return or in processing can lead to a different refund amount:
The IRS generally issues most refunds in less than 21 days, but it is possible a refund may take longer for various reasons, including if a return is incomplete or needs additional review. This delay could also be caused by transposed numbers or when a tax return is affected by identity theft or fraud. IRS Newsroom – IR-2023-76
While the IRS issues most e-file refunds in less than 21 days, it’s possible your tax return may require additional review. Some returns take longer to process than others for many reasons, including when a return is incomplete, affected by identity theft or fraud, or includes math errors. IRS – Publication 5348: Get Ready to File
Offsets for Past-Due Obligations
Your refund might be reduced to pay past-due obligations:
Sometimes a tax refund is smaller due to delinquent taxes or past due child support. The Department of Treasury’s Bureau of the Fiscal Service has more information on potential reduced refunds. IRS Newsroom – IR-2023-76 IRS Newsroom – IR-2023-76
State Tax Refunds and Taxable Income
If you received a state tax refund last year and deducted state taxes on your federal return, that refund might be taxable:
If you deducted state income tax on your Federal income tax return and then received a state income tax refund the following year, which was not reported as income on that return, be aware that as a general rule, gross income includes a refund of State income tax in the year received to the extent that the payment of such tax was claimed as a deduction in a prior taxable year which resulted in a reduction of Federal income tax. Dawson U.S. Tax Court Opinions: Jagtar Singh Khinda
What You Can Do
If your refund is significantly different from what you expected, here are some steps you can take:
- Review your tax return: Check for errors in your calculations or entries.
- Check for offsets: If you have past-due federal or state taxes, child support, or other federal debts, part of your refund may have been used to pay these obligations.
- Verify your withholding: Use the IRS Tax Withholding Estimator to ensure you’re having the right amount withheld from your paychecks.
- Contact the IRS: If you can’t identify the reason for the discrepancy, you may need to contact the IRS directly.
The IRS advises that taxpayers should only call the IRS tax help line to talk to a representative if it has been more than 21 days since their tax return was e-filed, or more than six weeks since mailing their return. IRS Newsroom – IR-2023-76
Remember that a smaller refund doesn’t necessarily mean you paid more taxes—it could simply mean that you had less tax withheld throughout the year, which is actually more financially advantageous as it gives you access to your money sooner rather than having it held by the government interest-free.
Sources:
Dawson U.S. Tax Court Opinions: Jagtar Singh Khinda
IRS Newsroom – IR-2023-32 – Tax Time Guide: Things to consider when filing a 2022 tax return
IRS – Tax year 2021/filing season 2022 Child Tax Credit frequently asked questions
IRS Newsroom – IR-2023-76 – IRS: Never mind the myths, find filing season facts at IRS.gov
IRS – Publication 5348: Get Ready to File
IRS Newsroom – IR-2022-203 – Get ready now to file your 2022 federal income tax return
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