A lot of people are going to be unpleasantly surprised when they prepare their federal tax return this year and discover that their refund is going to be less than last year’s – or that they owe money.
The average refund for last tax season was about $3,300 which was 14% higher than for 2021. A big chunk of that increase was thanks to pandemic-related stimulus payments and expanded tax credits. But these were temporary benefits that have now expired.
“Throughout the pandemic we saw a huge expansion of tax benefits for families with children, and that has all gone away now,” said Erica York, a senior economist with the non-profit Tax Foundation. “That means things like the child tax credit have reverted back to their normal structure, and we won’t see stimulus payments being reconciled on the tax returns this year either.”
“Depending how someone adjusted their withholding and what they’ve been paying to the IRS throughout the year, they could end up in a situation where they don’t see a tax refund, or where they owe some back to the IRS when they file their taxes,” York said.
Here are a few key tax law changes that may negatively affect those who have children.
- Child Tax Credit: Now $2,000 per child, down from $3,600 per child last year.
- Child and Dependent Care Credit: Now $2,100 per family, down from $8,000 per family.
One more tax law change that will affect most taxpayers – the 90 percent who do not itemize and take the standard deduction. Last year, you could still claim charitable deductions for cash contributions of up to $300 for individual filers and up to $600 for married couples filing joint returns. Not anymore. Once again to get a deduction for charitable contributions, you need to itemize.
One bright note: More people may be eligible for the temporarily expanded Premium Tax Credit, designed to help cover the cost of premiums for health insurance purchased through the Health Insurance Marketplace.
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Many people rely on tax refunds as part of their yearly budget. The Tax Foundation recommends preparing your return as soon as possible this year, so you can modify your budget if your refund is smaller than expected, or if you owe money.
If you owe, you don’t have to make any payment until the April 18 filing deadline, which may give you time to save up for it. If you can’t afford to pay what you owe by April 18 (that’s the deadline this year), check if you qualify for an IRS payment plan.
More Info: Tax Season Is Officially Underway; Here’s What You Need to Know
Herb Weisbaum, The ConsumerMan, is a contributing editor at Checkbook.org, a nonprofit organization with a mission to help consumers get good service and low prices. It does this by providing unbiased ratings, advice, and price information. Checkbook is supported by consumers and takes no money from the service providers it evaluates.
