There might be a few people who are wondering why their IRS tax refund is small this year compared to 2022.
The IRS has been informing people that their federal income tax refund might be smaller this year compared to the previous year for several months. The IRS had already returned nearly $16 billion as of February 3 on almost 19 million 2022 tax refunds.
But the average federal tax refund so far this year is $1,963, which is almost 11% less than refunds given at the same time last year. According to the IRS, the average tax refund back then was $2,201.
The expiration of several tax advantages that were available to taxpayers during the pandemic is a major factor in why your federal income tax refund this year might be less than what you got in the previous year.
IRS Tax Refund 2023: Changes Compared To 2022
The IRS is advising that many Americans will receive a lesser tax refund this year because the tax credits provided as pandemic relief have returned to pre-pandemic levels. The tax filing date of April 18 marks the end of the tax season, which formally began on January 23.
During COVID-19, people were struggling to make ends meet. The government has implemented several significant tax credits to assist taxpayers and their families in overcoming these struggles including income loss and childcare concerns.
But some of these popular credits won’t be offered in 2022 or will return to their pre-pandemic levels and amounts.
Changes To Earned Income Tax Credit
For people with low to moderate incomes, the Earned Income Tax Credit (EITC) is a source of financial assistance. During the pre-pandemic period, if you didn’t have any eligible dependents or children, you may claim up to $1,502 in EITC benefits.
However, a qualified taxpayer without eligible children is only allowed to claim a maximum of $560 for the year 2022. The amount that could have been claimed for the 2021 tax year was less than that.
The income limit is $16,480 if you are single, the head of household, or widowed and applying for the EITC in 2022 without qualifying children or dependents. The EITC income limit in 2022 is $22,610 for married couples, who do not have any eligible children or dependents, filing jointly.
Changes To Child Tax Credits
The Child Tax Credits were increased in 2021 to assist families during the pandemic. Families were then able to claim $3,000 for each child and $3,600 for children under the age of six. Children who were as old as 17 were also eligible for the credit then. The child tax credit in 2021 could be refunded later.
Well, these changes to the child tax credit have expired, parents can only deduct $2,000 for each child under the age of 17 as one of the 2022 tax years.
If you make a joint return, your Modified Adjusted Gross Income (MAGI) must not exceed $40,000. If you make a single return, it must not exceed $200,000. For 2022, the child tax credit is no longer entirely refundable.
Changes To Child And Dependant Care Tax Credit
The Child and Dependent Care Tax Credit were raised in 2021. However, it has been reduced to its pre-COVID-19 levels. The credit is entirely refundable because of the expansion. If their adjusted gross income fell below the $125,000 limit, they were able to deduct up to 50% of their $4,000 for one person in childcare credits.
The child and dependent care tax credits are now non-refundable for 2022 as a result of the expiration of those changes. If you have two kids or dependents, the maximum tax rate is $6,000, which is limited to 35% of the first $3,000 spent on child care.
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Other Changes In The Federal Income Tax Credits
Another change in the federal income tax you are going to witness is the change in the charitable contribution limits. The maximum amount you can deduct for monetary donations to charity for the 2022 tax year has changed.
A distinct rule made it possible for taxpayers to deduct up to 100% of their Adjusted Gross Income (AGI) from their charitable contributions in 2021. However, that limit is no longer in effect. In general, the deduction for financial donations to charities cannot exceed 60% of your AGI in 2022.
Moreover, up to $300 for single filers and $600 for married taxpayers filing jointly could previously be deducted above the limit for charitable contributions made by taxpayers.
But, that is no longer in effect for the 2022 tax year. So, to receive a tax credit for your charitable contributions, you must itemize your deductions.
Your tax refund may be less this year due to the changes to credits that had been increased during the pandemic.
A greater standard deduction, changes to your income and family size, and adjustments to other tax deductions and credits are just a few of the many variables that could affect the size of your refund.
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