The IRS has been warning taxpayers that 2022’s tax return might result in a smaller refund than the previous years. These warnings began early in 2022 so that people could make adjustments to their withholdings. The IRS was aware of many Pandemic Era Relief programs that were ending or reduced for 2022 and how that would affect the results of tax season. If you didn’t plan for these changes, the results might be shocking.
Recovery Rebate Credit
One of most publicized relief programs was the mailed or deposited stimulus checks that the government provided over the past couple of years. If these funds were not received, the IRS built in a recovery credit into the 1040 to receive the funds through a tax refund. This credit boosted refunds for the previous year’s taxes. However, this credit ended for the 2022 tax season and that large boost that came with it ended as well.
Advanced Child Tax Credit
Another relief program was the temporary increase on the advanced child tax credit. Either being mailed or deposited early, or built into the tax return itself, the increase here ballooned tax refunds through no extra effort of the taxpayer. This credit also ended and the child tax credit went back to operating as it did previous to the pandemic relief.
Earned Income Tax Credit
Another boost to tax refunds in the previous years was the increase in the amount and availability of the EITC. It was more accessible to younger and older age groups, but even more so, it almost tripled from its normal amount. With its reduction, it is now a 3rd of what it had been.
Child Dependent Care Credit
The child dependent care credit was also increased during the pandemic era. It is now reduced from the $8,000 that used to be available down to $2,100.
Student Loan Interest Deduction
Lastly, the student loan interest deduction could indirectly be affecting your refund. If you had been making payments and deducting the interest on your tax return, but then ceased making payments when they were no longer required, that deduction was lost to you in 2022.
For those who made adjustments to withholding during the pandemic era, or were praying for a large refund like last year, these changes could have made a large disruption to your expectations. In stating that, the results in April should never come as a surprise, and quarterly or monthly planning can alleviate any shock value that your income, withholding, or tax changes have.
If you not only reduced your refund, but resulted with a balance owed on your 2022, give us a call 800-822-4122 to learn your options.