May 24th, 2023 7:00am PDT
(PenniesToSave.com) – Tax season can bring a range of emotions as people eagerly anticipate their tax refunds from the IRS. However, sometimes taxpayers may end up feeling disappointed when their refund is smaller than expected or lower than what they initially anticipated when they filed their taxes. This begs the question: Why is your 2023 tax refund less than you expected?
There are several reasons why your tax refund for this season might be less than anticipated. One significant factor is the changes implemented to tax benefits under the American Rescue Plan for the tax year 2022. Certain tax credits, such as the Child Tax Credit, Child and Dependent Tax Credit, and Earned Income Tax Credit, have been revised or entirely removed, returning to their previous provisions.
The IRS has issued a warning to taxpayers about these changes, advising them that they may receive smaller refunds if they were eligible for these tax benefits in the previous year. These alterations to the tax provisions have had a significant impact on refund amounts for this current tax season.
Let’s take a closer look at some specific tax benefits that have undergone changes, resulting in smaller refund amounts. The American Rescue Plan, which was passed in March 2021, aimed to provide financial support to individuals facing hardship. It introduced initiatives like the third round of stimulus payments and expanded tax benefits and credits that families could claim on their 2021 tax returns (to be filed in 2022). However, several tax benefits have reverted back to their previous provisions or been eliminated entirely, leading to noticeable reductions in refund amounts.
Here are some changes to the benefits you should be aware of:
Child Tax Credit: The maximum amount of this credit has been reduced from up to $3,600 in the year 2021 tax year up to $2,000.
The Child and Dependent Care Credit has seen changes that affect the maximum amount you can claim. In the 2021 tax year, families with two or more children could receive a credit of up to $8,000 (or up to $4,000 for one child). However, in the current tax year, the maximum credit amount has been reduced to $2,100 for families with two or more children (or $1,050 for one child).
Changes were made to the Earned Income Tax Credit (EITC) eligibility for individuals without children. In the 2021 tax year, the EITC was expanded to include individuals without children and removed age restrictions. However, starting from the 2022 tax year, age limits have been reintroduced. This means that individuals under 25 or over 65 may no longer qualify for the EITC without dependents.
The Recovery Rebate Credit allowed eligible individuals who did not receive the third stimulus payment in 2021 to claim it when filing their taxes. It’s worth noting that the 2021 tax year was the final opportunity to claim this credit.
Under the American Rescue Plan, self-employed individuals and small business owners had the option to claim refundable tax credits for sick leave and family leave. This opportunity was valid for the entire 2021 tax year. However, it’s essential to remember that these credits have expired and are no longer accessible after the 2021 tax year.
As part of COVID Relief, individuals were given a unique provision regarding cash charitable donations. They can deduct up to $300 in cash donations (or $600 for married couples filing jointly) on their 2021 taxes if they choose the standard deduction. However, it’s important to remember that this deduction is no longer available when claiming the standard deduction for future tax years.
In addition to changes in tax benefits, the IRS has the authority to make adjustments to your tax refund if there are discrepancies between the information you provided on your tax return and their own records. These adjustments can occur because of common errors like overlooked income, mistakes in numbers, or modifications to deductions and credits. Moreover, if someone else claims your dependent on their tax return, it can impact your refund as well.
The Treasury Offset Program is designed to collect outstanding debts owed to federal and state agencies. If you have any overdue bills, these agencies may submit them, resulting in a reduction of your tax refund.