As a taxpayer, you receive a federal tax refund whenever you overpay taxes throughout the year or have more withheld from your paycheck than you ultimately owe. If you’ve enjoyed some nice big refunds in recent years, you may be disappointed with your numbers when you file your taxes – and you’re not alone.
The IRS itself recently warned taxpayers that tax refunds are indeed down this year. The main reason for this is the loss of pandemic-era benefits, which led to an increase in much-needed but unfortunate temporary relief in the previous two tax years. (If you missed the April 18 deadline and did not seek an extension, you should file your taxes as soon as possible.)
If you received everything on time, but are still disappointed with the return you received from the government, you need to understand the changes that affected the previous tax year.
Loss of pandemic-era benefits
In response to the financial impact of COVID-19, state and federal governments offered various stimulus programs and expanded several tax credits. Unfortunately, these changes are not permanent and the loss of pandemic benefits may be reflected on your 2022 tax return.
No more stimulus
Anyone who has not yet received a 2021 COVID reduction check in the mail will see it reflected in their 2022 calendar year tax return. However, because no COVID stimulus checks were issued at all in 2022, no additional relief factors into the tax refund you will receive in 2023.
Smaller Child Tax Credit
In 2021, Congress significantly expanded the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) – but only temporarily. The Hose Credit contracts again in 2022.
State Tax Credits
The good news: Last year, more than 50 million Americans received some form of stimulus check from their states. The bad: The federal government may be taxing these state benefits. The Federal Reserve may have counted your state-specific check as income, which means you may owe additional taxes. (Here’s how to check if the government (state or federal) still owes you stimulus money.)
The bottom line for taxes in 2022 is that everything is back to the pre-pandemic norm, only with post-pandemic inflation. Great.
As we mentioned above, if you haven’t filed your taxes on time, you should do so as soon as possible, and if you owe taxes, pay as much as you can to reduce penalties and interest on the taxes you owe as soon as possible.
