By Ryan Ermey -
CNBC
The IRS has already warned you: When tax season begins on April 18, you may find that you will receive a smaller refund than in 2021.
“Refunds may be less in 2023,” the IRS said in a November news release.
"Taxpayers will not receive an additional stimulus payment with a tax refund in 2023 because there were no economic impact payments in 2022," the federal entity added.
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The stimulus package is just one of the COVID-19 pandemic-era tax benefits no longer on the table, which this year could cut refunds by hundreds or even thousands of dollars, tax experts say .
“A lot of people are going to be surprised when they file their taxes,” says Robert Farrington, personal finance expert and founder of The College Investor.
In November, the IRS reported that tax refunds may be smaller in 2023. Patrick Semansky / AP
The median refund in the 2022 season was $3,176, up nearly 14% from $2,791 a year earlier, according to the IRS.
Even though tax year 2022 is long gone, you still have time to prepare for a lower refund or even take steps to reduce your federal taxable income.
Here's what you need to know.
Why might I get a smaller refund?
The status of your refund will likely depend on whether you took advantage of a number of COVID-era tax breaks available in tax year 2021. If you did, there's a chance you'll owe a larger tax bill for 2022, or owe a smaller refund.
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Some of the changes that have happened this year:
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There was no more stimulus.
Do you remember them?
Millions of Americans received a $1,400 stimulus payment in 2021. Some people received payments directly into their bank account or in the mail, but you may have received it as a refund on your 2021 tax return. That won't happen in 2022 .
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Child Tax Credit.
The 2021 tax year introduced an enhanced child tax credit of $3,000 for children under 18 and $3,600 for children under 6.
By 2022, they went back to the old rules: $2,000 for children under 17.
If you were planning to apply for a loan for your 17-year-old son, tough luck.
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Childcare and dependents.
Those who claimed a child and dependent care tax exemption last year are also seeing a reversion to lower limits.
A credit for expenses like daycare was worth up to $8,000 in 2021, but by 2022 it hits the previous limit of $2,100.
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Charitable contributions.
The charitable contribution deduction is generally a tax move reserved for the small percentage of taxpayers who itemize the corresponding deductions.
However, pandemic-era rules allowed all taxpayers to deduct up to $300 ($600 for married couples) in charitable contributions, even if they took the standard deduction.
That possibility will not be available for fiscal year 2022.
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Dec 26, 202201:45
What can you do if you receive a smaller refund?
Think of your tax bill like a report card, says Farrington.
“The school year ended on December 31.
Now you are waiting for the results, ”she says.
There's still time to get some proverbial extra credit in the form of a reduction in your taxable income.
If you have a health savings account, for example, you have until tax day to make contributions that can be deducted from your 2022 income. By 2022, individual taxpayers could contribute up to $3,650 and families up to $7,300.
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Traditional IRA owners can make a similar move.
By 2022, you can save up to $6,000 in one of these retirement accounts, which is fed with pre-tax dollars.
Contributing to one of these accounts can have multiple benefits, says Farrington: "You can reduce your taxable income while saving money for yourself."
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Even if lowering your bill isn't among your goals, it pays to be proactive about what you owe (or are owed).
Once you have your tax documents together, prepare your return as soon as possible.
You won't actually have to apply until mid-April, but in the meantime you can find out where you stand.
If you don't get the refund you expected, or if you owe an unexpected bill, finding out early will give you time to save and make up the shortfall.
